Despite the rising interest rates and weak economic activity, UK mortgage approvals increased in June, and consumer credit grew at the fastest pace in more than five years, official data revealed on Monday.
Mortgage approvals increased to 54,700 in June from 51,100 in May, the Bank of England reported. Economists had expected a fall to 49,400.
Approvals were the highest since October 2022 but they remained below the monthly average of 62,700 in 2022.
The ‘effective’ interest rate, which is the actual interest rate paid on newly drawn mortgages continued to exhibit sustained increases. The rate rose a further 7 basis points to 4.63 percent in June.
The <a href=https://www.rttnews.com/3371697/bank-of-england-surprises-with-50-bps-rate-hike.aspx?refresh=1 target=_blank >BoE </a>has lifted the benchmark interest rate over the last thirteen consecutive policy sessions due to runaway inflation. At 5.00 percent, the bank rate was the highest since 2008.
The central bank is widely expected to raise the bank rate by 25 basis points in the policy session on Thursday.
Net borrowing of mortgage debt by individuals rose to GBP 0.1 billion in June in contrast to net repayments of GBP 0.1 billion in May.
Gross lending increased for the second straight month in June, to GBP 20.0 billion from GBP 19.0 billion in May.
Consumer credit increased to GBP 1.7 billion in June after a GBP 0.5 billion decrease in May. This was the biggest net consumer credit borrowing since April 2018. Annual growth in overall consumer credit remained unchanged in June, at 7.6 percent.
Borrowing on credit cards remained unchanged at GBP 0.6 billion, while borrowing through other forms of consumer credit doubled to GBP 1.0 billion from GBP 0.5 billion in May.
Data showed that households deposited an additional GBP 3.4 billion with banks and building societies, following net withdrawals of GBP 3.1 billion in May.
Further, businesses repaid GBP 5.6 billion of loans compared to GBP 0.4 billion of net repayments in May.
Growth in borrowing by large businesses slowed to 0.6 percent from 3.6 percent in May. Meanwhile, SMEs repaid loans in June, with the rate decreasing for fifth consecutive month.
Capital Economics’ economist Ashley Webb said the central bank will keep rates high until the second half of 2024 means mortgage rates are likely to plateau rather than fall. That signals mortgage lending and housing activity will remain weak over the coming months.