Press release

1 Jun 2023 London, GB

Latest mortgage lending data point to challenges for the housing market – EY ITEM Club comments

A fall in mortgage approvals and a net repayment of mortgage debt in April point to a housing market in a challenging position. Meanwhile, climbs in mortgage rates, prompted by the likelihood of more rate rises by the Bank of England, could intensify the market’s challenges further.

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James White

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  • A fall in mortgage approvals and a net repayment of mortgage debt in April point to a housing market in a challenging position. Meanwhile, climbs in mortgage rates, prompted by the likelihood of more rate rises by the Bank of England, could intensify the market’s challenges further.     

  • The fact that the appetite for unsecured credit was reasonably robust in April will have bolstered other supports to consumption. However, with the previous month's net drawdown of cash in bank accounts more than reversed, it seems households’ appetite to spend their savings is limited.     

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Household lending data for April showed the previous revival in activity since early 2023 coming to a halt. The 48,690 mortgages approved that month was down from 51,488 in March and well below the historical norm. Meanwhile, net mortgage lending fell into negative territory. A net £1.4bn of mortgage debt was repaid in April, the biggest net repayment since records began in 1993, if the pandemic period is excluded.

“Combined with the latest Nationwide house price data, which showed the largest year-on-year fall in values in May since 2009, April's lending numbers point to a housing market struggling in the face of pressure on household finances and higher mortgage rates. 

“The latter continued to increase in April, with the average rate on new mortgages reaching 4.46%, up slightly from 4.41% a month earlier. And rates could head up further, putting more pressure on housing market activity. Recent higher-than-expected inflation data has pushed gilt yields towards levels not seen since last autumn's ‘mini-budget’, resulting in some lenders announcing increases in the cost of fixed-rate mortgages and withdrawing some products. The EY ITEM Club now thinks the Bank of England will likely raise interest rates further this month and potentially again later in the summer. 

“Higher borrowing costs could also lead to a pick-up in demand for unsecured debt. Net consumer credit was £1.6bn in April. This was broadly unchanged from March, but above the 2022 average of £1.2bn, although the impact of high inflation on cash spending and associated credit will have flattered the number. Higher levels of unsecured lending should be good news for consumer spending, although the fact that households added £3.6bn to bank deposits in April, more than offsetting a net withdrawal of £3bn in March, means consumers' appetite to dissave appears limited.”