UK mortgage approvals plunge to record low during lockdown
UK household borrowing dried up at a record rate in April and mortgage approvals plunged to their lowest since 1993 as consumers drew in their horns while the economy was ravaged by coronavirus.
Instead of borrowing, households repaid their debts at a record pace. They returned £7.4bn to banks in the largest net repayment since records began, Bank of England figures showed today.
Meanwhile, mortgage approvals plunged to just 15,800 in April, the lowest since records began in 1993. That was 80 per cent below the February level and around half the number of approvals as the trough during the financial crisis.
The figures lay bare the effect of the coronavirus lockdown on consumer spending. With little to spend their money on and record levels of uncertainty, Britons shunned borrowing as the economy contracted sharply.
People took the opportunity to repay credit card debts, for example. The majority – £5bn – of net consumer credit repayments were on credit cards, while £2.4bn of other loans were also repaid.
The plunge in mortgage approvals came as survey data showed that UK house prices dropped by 1.7 per cent in May. That was their biggest fall since 2009, during the financial crisis.
April could be the trough for the economy
Many analysts have said that they expect April to have been the nadir for the economy, however. The government has eased coronavirus restrictions in recent weeks, with many children returning to school and some shops opening yesterday.
The Bank of England’s figures today showed that UK households and businesses are continued to increase their bank deposits in April. Holdings of households, and firms rose by £37.3bn in April, after an increase of £67.3bn in March.
The figures suggest that many consumers will have plenty of money to spend once coronavirus restrictions are lifted. This could fuel the recovery.
Yet economists warn that many Britons will still be reluctant to spend due to uncertainty about the economy and fear of catching Covid-19 in shops. Social distancing is also likely to limit the amount consumers spend bricks-and-mortar stores.
The cost of borrowing fell dramatically last month, the Bank said. The effective rate on overdrafts, including fees, was 10.9 per cent in April, a sharp 15 percentage points lower than in March.
The interest rate on new fixed-rate mortgages was little changed, but floating-rate mortgage borrowing rates fell by 46 basis points (0.46 percentage points).