Mortgage lending in the UK bounced back in May, according to the latest Money and Credit report from the Bank of England, providing fresh evidence of stabilisation in the housing market.
Net mortgage borrowing by individuals increased by £2.1 billion in May, reversing a sharp contraction of £0.8 billion in April – a swing of nearly £3 billion.
Gross mortgage lending also rose, reaching £20.4 billion, up from £16.9 billion in the previous month, while gross repayments fell to £17.6 billion.
In a sign of renewed confidence among buyers, mortgage approvals for house purchases rose for the first time since December 2024, increasing by 2,400 to 63,000. Remortgaging activity also surged, with approvals rising by 6,200 to 41,500 – the largest monthly increase since February 2024.
RATES DOWN
The effective interest rate on newly drawn mortgages edged down slightly to 4.47% in May from 4.49% in April, while the average rate on the existing stock of mortgages nudged up to 3.87%.
Elsewhere, net consumer credit borrowing fell to £0.9 billion in May from £1.9 billion in April. This included a sharp decline in credit card borrowing, which dropped to just £0.1 billion – down from £1.2 billion in the previous month.
Business lending also turned positive. Private non-financial corporations borrowed a net £1.0 billion in May, following net repayments of £2.3 billion in April. However, these firms reduced their overall money holdings by £3.8 billion, in contrast to net inflows into household and non-intermediating financial company accounts.
John Phillipou, Managing Director of SME Lending at Paragon Bank and Chair of the Finance & Leasing Association, says: “The latest ONS data showing a 3.9% rise in UK business investment over the last quarter is a promising sign of cautious optimism among UK firms, particularly in the SME sector and especially given the multitude of complex economic and geopolitical headwinds businesses are navigating.
“While this figure may be a downward revision from the initial 5.9% estimate, it still represents a solid 6.1% year-on-year increase.”
INDUSTRY REACTION
Nathan Emerson, Chief Executive of Propertymark, says: “It is incredibly positive news to see an increased number of mortgage applications approved.
“It is one of the loudest signals of them all regarding consumer affordability, and it is also a massive vote of confidence from lenders in the longer-term prospects of the economy too.
“As we head into the summer months, we have witnessed on average the number of viewings per property available see an uplift of around 30% compared to the month previous.
“On top of this, we have also seen the UK Government make a pledge to create a National Housing Bank which could bring significant investment to help build 500,000 new homes, enabling a potential greater degree of flexibility for those who aspire to buy.”
BETTER THAN IT LOOKS
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “This is the first increase in mortgage approvals following four consecutive monthly falls, demonstrating the direction of travel for housing market activity over the next few months at least, as well as underlying resilience.
“New buyers are still cautious about economic prospects here and abroad and are taking their time to appraise the much better choice of available properties, resulting in lengthening transaction times.
“But these numbers do not of course include the estimated 40% of cash buyers who we have found are proving even more picky when it comes to agreeing terms.”
BACK ON TRACK
Jason Tebb, President of OnTheMarket, says: “The market appears to be back on track with approvals for house purchases, an indicator of future borrowing, increasing for the first time since December.
“Market stability and buyer confidence continues to be steady, even though it is now too late to take advantage of the stamp duty holiday.
“With the rate on newly-drawn mortgages falling again in May, while the rate on outstanding mortgage stock rose slightly, overall there are signs that affordability continues to ease a little. Several base rate reductions since last August have helped, along with lenders easing criteria, but mortgage rates are still higher than many have grown used to in recent years.
“Further rate reductions from the Bank of England would provide more impetus for the market in the second half of the year.”
SLUGGISH CONDITIONS WILL CONTINUE
Simon Gammon, Managing Partner, Knight Frank Finance, says: “May mortgage approvals for house purchases ticked up a little but are broadly consistent with a property market treading water. Rates have largely plateaued, with leading fixed deals just below 4%.
“Lenders are adjusting pricing at the margins – some cuts, the occasional rise – but it’s more about managing business volumes than responding to any major shift in outlook.
“Remortgaging jumped and will continue to rise as the year progresses – 1.8 million fixed rate mortgages are due to mature during 2025. This will be painful for those moving off five-year fixed rate products agreed in 2020, when mortgage rates were still ultra-low.
“The housing market remains driven by first-time buyers.”
“The housing market remains driven by first-time buyers and families who really need to move, rather than discretionary buyers in higher price brackets.
“Downsizers are active too, though many are struggling to offload larger homes in favour of smaller ones, where activity is stronger.
“The outlook for mortgage rates is benign, and recent labour market data points to a weakening economy that could unlock further base rate cuts – perhaps to 3.75% by the year end. Still, with leading fixed rates unlikely to dip below 3.7% before 2026, current sluggish conditions look set to persist.”
REAL RESILIENCE
John Phillips, Chief Executive of Spicerhaart and Just Mortgages, says: “Despite much doom and gloom following the change in stamp duty thresholds at the end of March, May’s rise in mortgage approvals – along with an increase in property transactions reported on Friday – shows any lull was likely only temporary.
“It certainly mirrors what we are seeing on the ground throughout our estate branches and the reports from our brokers, with strong demand for valuation requests, buyer registrations and mortgage appointments.
“The housing market continues to show real resilience – even in the face of stubborn inflation and some painful changes that came with the new tax year.
“This has been helped by continued innovation from lenders and real proactive support from advisers. Just as encouraging is a drop in net borrowing of consumer credit, which shows there is less reliance on the likes of credit cards and that hopefully the heavy financial burden felt by many households is slowly starting to ease.
“This all helps towards affordability and accessibility as many individuals look to turn appetite into ability with the help of their local adviser.”
MORE BUYERS, MORE SALES
Richard Donnell, Executive Director at Zoopla, says: “Mortgage approvals have increased for the first time in five months as increased sales agreed has boosted the demand for mortgages from home buyers. More homes for sale means more buyers and sales.
“We expect demand for mortgages to continue to increase as more sales are agreed. The market remains on track for 5 per cent more sales in 2025 with price inflation steady at 2%.”
