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UK mortgage approvals rose in June and consumer credit grew at its fastest pace for five years, as British borrowers weathered the highest interest rates in 15 years.
Official data showed net mortgage approvals for house purchases rose to 54,700 in June from 51,100 in May, in a shift that defied analysts’ predictions.
Approvals for remortgaging rose to 39,100 from 34,100, Monday’s figures showed.
In another development that potentially bolstered the case for a Bank of England interest rate rise this week, net borrowing of consumer credit rose to £1.7bn, the highest since 2018.
“The economy may have ended the second quarter on the same resilient note that it has had all year,” said Thomas Pugh, economist at the auditor RSM UK.
Analysts had expected the housing market to slow in a month when the BoE raised interest rates sharply to 5 per cent — the 13th consecutive rise and the highest level since 2008.
The 0.5 percentage point increase caused lenders to temporarily pull mortgage deals from the market while they repriced them.
Monday’s data also suggested consumers were more confident about spending in other areas.
Borrowing on credit cards remained stable, the BoE said, while consumer credit — which includes car dealership finance and personal loans — rose.
But Pugh cautioned that “the lagged effect of the huge rise in interest rates that has already happened, combined with the risk of further rate rises, could easily tip the economy into recession later this year”.
The BoE has increased interest rates from 0.1 per cent in December 2021 and is expected to raise them further when its monetary policy committee meets this Thursday.
However, the steep rise in rates is feeding through only slowly to mortgage rates.
The BoE said the “effective” interest rate — the actual interest rate paid — on newly drawn mortgages rose just 7 basis points to 4.63 per cent in June, a relatively modest increase. The effective rate on the outstanding stock of mortgages rose 10bp to 2.92 per cent.
Andrew Wishart, property economist at the consultancy Capital Economics, said it took between two and three months for quoted mortgage rates to feed through to housing market activity, so the figures for June would reflect an earlier decline in mortgage rates.
Mortgage approvals are already well below their pre-pandemic average. Analysts think the market is unlikely to pick up in the short term, even though better inflation data has raised hopes that the BoE may be able to stop raising interest rates earlier than previously thought.
Richard Donnell, research director at property portal Zoopla, added that the hit from high mortgage rates on house sales was “far from uniform” across the country.
“The impact of higher rates is being felt most in southern England,” he said. “In many lower value areas, the cost of buying with a 5.5 per cent mortgage remains cheaper than rental cost.”
The average rent across the UK was £1,283 in June, 28 per cent higher than in February 2020, at the onset of the Covid-19 pandemic, according to estate agency Hamptons.
Nicholas Mendes, mortgage technical manager at John Charcol, said the brokerage had in recent weeks seen a rise in demand for tracker mortgages — loans for which the interest rate can fluctuate.
“Historically, fixed rates were the default option for homeowners,” he added. “Now there is a growing trend for more borrowers opting for trackers, hoping that rates will keep easing and [for] the opportunity to fix at more attractive rates in a few months.”
Chris Druce, senior research analyst at estate agency Knight Frank, said that while the housing market might avoid a “cliff-edge moment” this year, any “dramatic turnaround in activity” remained unlikely.
