UK mortgage approvals rose for the first time in four months in May, according to new data from the Bank of England, signalling a revival in housing market confidence after April’s stamp duty changes and a recent cut in interest rates.
The number of new mortgages approved for house purchases climbed to 63,000 in May, up from 60,600 in April. The figure beat analysts’ expectations of 59,000 and marked the highest reading since January. It also suggests that April’s sharp contraction in approvals was a temporary blip caused by policy changes, rather than the beginning of a downward trend.
The rebound comes as the housing market adjusts to changes in stamp duty thresholds that took effect in April. In anticipation, many buyers brought forward their purchases, temporarily reducing lending volumes. The total volume of net mortgage lending jumped by £2.8 billion in May, a sharp turnaround from April’s £800 million decline.
Remortgage activity also picked up, with 41,500 approvals — the highest monthly figure since February. Analysts say falling borrowing costs and improving sentiment are encouraging homeowners to lock in new rates.
The effective interest rate on new mortgages declined slightly from 4.49% to 4.47% in May, continuing a steady easing in borrowing costs. Market rates for two- and five-year fixed mortgages have also dropped to levels last seen in 2022, buoyed by investor expectations of further interest rate cuts from the Bank of England.
The Bank’s monetary policy committee cut its base rate from 4.5% to 4.25% in early May and is widely expected to lower it again in August. Markets are currently pricing in a base rate of 3.75% by the end of the year — which would represent the lowest level since early 2023.
“Now that volatility has started to ease, the fundamental drivers of mortgage demand should reassert themselves,” said Matt Swannell, chief economic adviser at the EY Item Club. “Mortgage rates are now much lower than they have been for most of the past three years, while nominal earnings growth has been strong. Together, these forces mean affordability is much less stretched than it has been in the recent past.”
While mortgage approvals remain below the pre-pandemic average of 66,000 per month recorded in 2019, May’s figures are running 2.5% higher than the same month in 2024 — a sign that market momentum is building.
Anthony Codling, an analyst at RBC Capital Markets, said April’s contraction in approvals was proving to be “a blip not a trend”. He added: “Housing market activity is broadly in line with the five-year average, which is comforting news for homebuyers and sellers. However, the government will need to see a more active housing market if it is to get close to its five-year target of 1.5 million new homes.”
Despite the upturn in mortgage activity, economists expect UK GDP growth to remain sluggish in the second quarter, following a stronger-than-expected 0.7% expansion in Q1.
