UK mortgage approvals fell further to hit a record low in May as the coronavirus pandemic continued to hit the housing market, according to the latest Bank of England figures.
Some 9,300 new loans for houses were approved last month, down from April’s 15,900. Economists polled by Bloomberg had been expecting 25,000 approvals for May.
The slump in May means that mortgage approvals were at a third of their trough during the 2008 financial crisis last month.
The introduction of a nationwide lockdown to control the spread of coronavirus essentially brought the UK housing market to a standstill from late March.
Although restrictions covering the housing market in England were eased in mid-May, this did not help lift mortgage approvals for the month. Restrictions in Scotland, Wales and Northern Ireland were lifted in June.
An expected spike in unemployment as the government’s furlough scheme begins to wind down from August and increasing unwillingness from lenders to take on risk means that the figures are unlikely to improve substantially in the coming months.
“There does appear to have been an immediate marked pick-up in housing market activity following the easing of restrictions – although it is questionable whether it will be sustained,” said EY Item Club chief economic adviser Howard Archer.
Archer added that while some indicators point to a small improvement in the outlook for home sales in the coming year, “given the economic uncertainty caused by the pandemic, overall sentiment remains cautious”.
UK house prices are set to fall five per cent this year and will not recover until the end of 2022, according to analysts polled by Reuters. In its worst case scenario, prices would fall 11 per cent this year.
“We remain for now in an artificial environment created by the government’s furlough scheme. When this is slowly withdrawn, we will see the full impact on confidence, among borrowers and lenders alike,” said Andrew Montlake, managing director of mortgage broker Coreco.
Separate figures released by the BoE today showed that UK households continued to build up savings and pay down debt last month as non-essential shops remained closed to help contain the spread of coronavirus.
Households added a record £25.6bn to their account in May, taking the total over the past three months to £56.6bn, the BoE said.
Meanwhile, consumers reduced credit card and other unsecured loans for a third month, repaying a total of £4.6bn.
Chancellor Rishi Sunak said last week that restoring consumer confidence would be key to the UK’s economic recovery from the crisis, despite households’ balance sheets being in “reasonably robust shape”.