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UK mortgage lending slows as higher rates squeeze living costs
The fall in mortgage lending points to a loss of momentum in the housing market, which boomed during the pandemic. Lloyds Banking Group Plc, the biggest UK mortgage lender, this week predicted house prices will grow just 1.8% this year and fall 1.4% in 2023.
UK mortgage approvals fell more than forecast in June and consumers dramatically stepped up their borrowing, both signs that the cost of living crisis is tightening its grip on the economy.
Lenders authorized 63,726 home loans, down 3% from May and the fewest in two years, Bank of England figures published Friday show. Consumers took out an extra £1.8 billion ($2.2 billion) of unsecured debt, well above the £1.2 billion averaged in the previous six months.
The fall in mortgage lending points to a loss of momentum in the housing market, which boomed during the pandemic. Lloyds Banking Group Plc, the biggest UK mortgage lender, this week predicted house prices will grow just 1.8% this year and fall 1.4% in 2023.
The downgrade reflected the rising cost of borrowing as policy makers hike interest rates in attempt to tame rampant inflation. The BOE figures showed the effective interest rate on new mortgages rose to 2.15% in June, the highest level since late 2016. A 20 basis-point increase from May represented the biggest jump since at least 2015. The value or mortgages advanced dropped to £5.3 billion, below the previous six-month average.
The surge in consumer credit may partly reflect distress borrowing by people struggling to make ends meet, with credit cards accounting for more than half the increase. An Office for National Statistics survey published this week found more than a fifth of adults reported having to borrow more over the past month.
The figure may also reflect spending on summer vacations after two years in which international travel has been subject to pandemic restrictions.
In a further sign of the pressure on incomes, the BOE said households deposited an additional £1.5 billion with banks and building societies in June, down sharply from £5.2 billion in May and the lowest figure for more than four years.
