Analysts said the depressed state of the mortgage market was not entirely unexpected, given restrictions on home visits until May and delays in approving mortgage loans.
“The latest fall is not a sign that the market is struggling to recover,” said Hansen Lu, a property analyst at Capital Economics. “On the contrary, it probably reflects the gap in the sales pipeline, since the market closed between March and May.
“With households confined to their homes, there would have been far fewer sales than usual going through the mortgage approval stage in May. In addition, many buyers with half-completed sales renegotiated the price, which also indicates a delay in the sales pipeline. ”
Lu said loans are expected to resume in June after reports of a surge in demand for real estate and agreed sales.
Mark Harris, managing director of mortgage broker SPF Private Clients, said: “Covid-19 had a devastating impact on the mortgage and real estate markets, so it’s not surprising that loans were weak in May, approvals for the purchase of houses that have fallen. .
“Since the foreclosure meant that lenders were unable to send experts to physically view the properties, the number of approved mortgages has decreased significantly.”
Data from the Bank of England also showed that consumers continued to pay off their debts in May, a further sign that the pandemic has made households more cautious.
People repaid £ 4.6 billion of consumer credit in May after repayments of £ 7.4 billion in April and £ 3.8 billion in March, the bank said. There were repayments on credit card loans (£ 1.8 billion) and other forms of consumer credit such as overdrafts (£ 2.8 billion). The three successive heavy net repayments of consumer credit compared to additional borrowing of around £ 1 billion a month in the 18 months ending in February 2020.
The Bank said that “extremely weak” net consumer credit flows meant that the annual growth rate was -3.0%, the lowest since the start of the series in 1994. A breakdown of the overall figure has showed that the annual growth rate of credit card loans was negative for the third consecutive month, down to -10.7% from 3.5% in February.
Consumers’ reluctance to borrow money since the UK was blocked has arisen despite reduced borrowing costs. According to the Bank, effective rates on new personal loans to individuals fell 34 basis points to 5.10% in May. It was the lowest since the series started in 2016 and compares to a rate of around 7% in early 2020.