UK Housing Market Faces Stress as Mortgage Lending Hits Record Low

The UK housing market is showing signs of increased stress as mortgage lending hit a record low in April, with property valuations falling at the fastest annual rate in almost 14 years, according to figures from the Bank of England.

Net mortgage approvals for house purchases fell from 51,500 in March to 48,700 in April, while remortgaging approvals increased slightly from 32,200 to 32,500.

The effective interest rate – the rate paid by consumers – on newly drawn mortgages rose by 5 basis points to 4.46%.

Borrowing costs have risen dramatically in recent months after 12 straight interest rate increases from the central bank, taking its key base rate from 0.1% in December 2021 to the current level of 4.5%.

Financial markets expect that the central bank could drive interest rates above 5.5% before the end of the year.

Against a backdrop of rising interest rates, banks and building societies have pulled almost 800 residential and buy-to-let mortgage deals in the past few days and warned homeowners looking for new mortgage deals to prepare for fixed rates above 5% in the coming weeks.

In a sign of the challenges facing the housing market, the latest figures from Nationwide showed that house prices dipped by 0.1% in May from the level a month earlier, although this was a more positive showing than in April, when prices rose for the first time in seven months.

The building society warned that the housing market was facing “headwinds” that would increase in the coming months.

Nationwide said that house prices had largely remained flat over the past month after seasonal effects had been taken into account, taking the average price of a home in the UK to £260,736.

That remains 4% below the peak seen in August 2022, before former prime minister Liz Truss’s disastrous autumn mini-budget resulted in borrowing rates shooting up for prospective buyers and those remortgaging their homes.

Robert