A report from the Bank of England issued today revealed that net borrowing of mortgage debt by individuals fell to £4.1 billion in April compared to £6.4 billion in March this year.
The institution reported that mortgage approvals for house purchases also dropped to 66,000 against 69,500 month-on-month, indicating the concerning trend that borrowing is primed to fall further going forward.
The Bank commented that both measures were slightly below their 12-month pre-pandemic averages to February 2020.
The surprising 36% slide has been linked to rising 9% inflation and the crushing cost of living as macroeconomic volatility wrecks havoc on the markets.
“This data could be taken as the latest sign that nervousness over inflation and household finances is starting to drag on what has been an overheated sellers’ property market,” said Bestinvest financial analyst Adrian Lowery.
“Online portal Zoopla revealed this week that one in 20 listed properties reduced their asking price by 5% or more in April to mid-May, more than in previous months.”
“It added that buyer demand remains high but there are now signs that the market is softening, and price growth is set to slow. And it estimated that the average price reduction across the UK is 9%.”
In addition, the Bank of England’s interest rate hike to 1% has resulted in a knock-on effect on mortgage rates, with data revealing a nine basis-point rise to 1.82% on the effective interest rate for newly-drawn mortgages.
“Further hikes to the Bank Rate are expected in coming months as the Bank of England seeks to rein in soaring inflation,” said Lowery.
“And fears of further mortgage rate rises have been pushing more and more homebuyers and remortgagers to look for longer-term fixed-rate mortgages.”
Demand for 10-year mortgage deals
There has been a notable surge in 10-year deals, with comparison site MoneySupermarket reporting a jump in searches for 10-year mortgages to 14.2% from 2.9% of all customer results.
“The lure of the 10-year fix is also strong because they are not much more expensive than the five: 3.21% compared with 3.17%, according to data analyst Moneyfacts,” said Lowery.
However, the concern should be highlighted that a 10-year deal risks locking a home owner into a mortgage that prevents the customer from shopping around or using a mortgage broker for additional borrowing.
“While locking in at current low rates makes very good sense for many borrowers, care must be taken to get the right home loan for your circumstances,” said Lowery.
“If you are intending to move in the coming few years, your fixed-rate mortgage may well be ‘portable’ to your new property, but you will be restricted to your current lender for any extra borrowing you might need if you are upsizing.”