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Mortgage lending jumps as borrowing rises amid cost of living squeeze

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·Business Reporter, Yahoo Finance UK
·3 min read
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Bank of England, in the City of London. The central bank released data on Friday on mortgage approvals and consumer credit
UK mortgage approvals: Banks approved 66,200 home loans during the month, slightly higher than in April and beating economists' expectations of a decline. Photo: Press Association

UK mortgage lending jumped to the highest level in eight months in May, while borrowing also increased as the cost of living squeeze continues to dent household budgets.

According to the Bank of England (BoE) on Friday, net lending jumped to £7.4bn ($8.9bn) during the month, up from £4.2bn in April, and the highest since September 2021.

This sits above the 12-month pre-pandemic average up to February 2020 of £4.3bn.

Banks approved 66,200 home loans during the month, slightly higher than in April (66,100) and beating economists' expectations of a decline.

The figures come amid signs the property market boom is cooling, and after housing reports from Nationwide and Zoopla which suggest price growth has ground almost to a halt.

Read more: Average house price: What £281k buys you across the UK

Nationwide revealed in its index earlier this week that annual house price growth eased back for the third consecutive month, with tentative signs of a slowdown as surveyors report some softening in new buyer enquiries.

“While many would expect nervousness about inflation and household finances to be dampening people’s desire to take on a mortgage as the cost of living crisis pummels consumer confidence, the uplift in net borrowing might appear the reverse is true,” Alice Haine, personal finance analyst at Bestinvest, said.

“However, this data has been very volatile recently and while the UK property market may have defied expectations countless times over the past couple of years, runaway inflation, rising borrowing costs and the fallout from Russia’s invasion of Ukraine are now set to take their toll on what has been an overheated sellers’ market.”

Watch: Will UK house prices ever fall?

The BoE also revealed on Friday that individuals borrowed an additional £800m in consumer credit in May, following £1.4bn of borrowing the month before.

This took the total amount of debt taken on so far this year to £5.7bn, lower than the same period in 2019 when Brits borrowed £5.8bn.

The additional borrowing in April of consumer credit was split between £400m on credit cards, and £400m through other forms of consumer credit, such as car dealership finance and personal loans.

Households also deposited £5.4bn into banks and building societies in May, slightly down on the April figure of £5.7bn.

Meanwhile the effective interest rate paid on individuals’ new time deposits with banks and building societies rose to 1.25% in May from 1.09% the previous month.

Read more: Homeowners facing £2,500 a year mortgage increase

Laura Suter, head of personal finance at AJ Bell, said: “Looking at the latest figures for how much debt we’re all taking on you might think the cost of living crunch is over. As a nation, both our borrowing and saving in May are sitting around pre-pandemic levels.”

She added: “The reality is that these average figures hide a split nation, with some households able to stomach the rising price of food, petrol, energy and almost everything else, either by budgeting and cutting costs or because they have sufficient earnings to cover it.

“Those households are also still able to stash money away each month, and with investment markets rocky it’s likely some are parking it in cash rather than diving into markets.

“On the flip side, we have another section of the population who have run through their savings, made all the cutbacks they can and are now turning to debt to settle their bills each month. Budgeting can only take you so far if your income isn’t rising and all of your bills are.”

Watch: How to save money on a low income

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