British mortgage approvals increased more than expected in May despite the rising interest rates, but households started to reduce their reliance on credit and withdrew more money from their savings.
The number of mortgages approved in May, an indicator of future borrowing, increased to 50,500 from 49,000 in April, the Bank of England said Thursday. The expected level was 49,700.
At the same time, approvals for remortgaging rose to 33,600 from 32,500 a month ago.
The ‘effective’ interest rate, which is the actual interest rate paid on newly drawn mortgages, rose by 10 basis points to 4.56 percent in May.
The BoE has lifted its benchmark rate over the last thirteen consecutive policy sessions, taking it to the current 5.00 percent, which is the highest since 2008.
Individuals repaid GBP 0.1 billion of mortgage debt in May after a net repayment of record GBP 1.5 billion in April.
Consumer credit decreased to GBP 1.1 billion in May from GBP 1.5 billion in April. The additional borrowing was split between GBP 0.6 billion of borrowing on credit cards and GBP 0.5 billion of borrowing through other forms of consumer credit.
The annual growth in consumer credit slowed to 7.5 percent from 7.6 percent in April.
Households withdrew GBP 4.6 billion from banks and building societies, which was the highest withdrawal on record.
At the same time, businesses repaid GBP 0.6 billion loans in May compared to GBP 0.5 billion in April.
Despite the improvement in lending data, mortgage lending and housing activity will take a big step down in June as well as in July, Capital Economics’ economist Ashley Webb said.
The economist said consumer credit will fall further in the months ahead as the growing drag from higher interest rates may mean households cut back on their borrowing and spending.
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