The UK housing market showed further signs of cooling in May as mortgage approvals for house purchases dropped to their lowest level since December 2023, according to data released Monday by the Bank of England. Lenders approved just 56,205 mortgages during the month, a sharp decline from April's 66,034 and below the six-month average of 63,300.
Net mortgage borrowing by individuals fell to £2.9 billion in May, down from £4.4 billion in April and well below the previous six-month average of £5.1 billion. This marks the lowest monthly borrowing since May 2025, when net borrowing stood at £1.9 billion. Despite the monthly weakness, the annual growth rate of net mortgage lending edged up to 3.4% from 3.3%.
The effective interest rate on newly drawn mortgages rose to 4.22% in May from 4.08% in April, while the rate on outstanding mortgages held steady at 3.92%. Remortgaging approvals also slumped, falling to 33,300 from 51,200 in April, suggesting homeowners are increasingly reluctant to refinance at higher rates.
The slowdown extended beyond housing. Net borrowing by UK non-financial businesses dropped to £1.2 billion in May from £5.1 billion in April, with large firms accounting for £1.3 billion of that total, down from £3.9 billion. Small and medium-sized enterprises (SMEs) actually repaid a net £0.1 billion after borrowing £1.2 billion the prior month. The annual growth rate of large business borrowing slowed to 9.8% from 12.3%, while SME borrowing growth eased to 3.9% from 4.2%.
Consumer credit remained broadly stable, with net borrowing of £1.7 billion in May, unchanged from April and slightly below the six-month average of £1.9 billion. Credit card borrowing slipped to £0.6 billion from £0.8 billion, while other forms of consumer credit—including personal loans and car dealership finance—rose to £1.1 billion from £0.9 billion. The annual growth rate for total consumer credit ticked up to 8.9% from 8.7%.
Interest rates on consumer borrowing showed mixed trends. Overdraft rates fell 22 basis points to 21.57%, while new personal loan rates increased to 9.66% from 9.53%. Credit card interest rates edged higher to 21.45% from 21.20%.
Households increased deposits with banks and building societies by £5.4 billion in May, driven by inflows into Individual Savings Accounts (ISAs) and interest-bearing time accounts, partly offset by withdrawals from sight deposit and non-interest-bearing accounts.
The broader money supply measure, sterling M4ex, expanded by £11.0 billion in May, up from £9.2 billion in April. However, sterling net lending to the private sector (M4Lex) slowed sharply to £0.6 billion from £11.5 billion, reflecting repayments by non-intermediate other financial corporations and weaker borrowing by households and businesses.
The data underscores a broad-based pullback in credit activity across the UK economy, with mortgage approvals, business lending, and private sector credit all losing momentum. The housing market faces headwinds from elevated borrowing costs and subdued demand, as highlighted in recent reports on UK house prices and homebuilder performance. Broader economic weakness, reflected in the UK private sector PMI falling to a 14-month low, suggests the lending slowdown may persist.
This article is for informational purposes only and does not constitute financial advice.
