Fewer mortgages were approved in the UK in April, although net consumer credit increased, as the cost-of-living crisis began to hit household budgets and spending.
According to the Bank of England, mortgage approvals for house purchases dropped to about 66,000 in April, from 70,700 in March.
That was well below consensus expectations for a much smaller fall to around 70,500.
At the same time, net consumer credit increased by £1.4bn over the month, above expectations for a rise of £1.2bn.
Households, however, still appeared unwilling to dip into their savings, with their total liquid assets – deposits at banks and building societies, and cash in NS&I accounts – rising by £6.3bn.
“On the face of it, households’ continued unwillingness to draw on the savings they accumulated during the pandemic points to a sharp decline in real expenditure in the second quarter,” said Pantheon Macroeconomics senior UK economist Gabriella Dickens.
Dickens pointed out that the £6.3bn rise in liquid assets was above the £4.9bn average rise in the two years prior to the Covid-19 pandemic, and “a bit bigger” than the £5.9bn increase in March.
“We define ‘excess savings’ as the difference between their actual level and the level they would have reached if they had continued to rise at the average monthly rate between 2018 and 2019 – in April, total ‘excess savings’ increased to £187.9bn, from £186.4bn in March.”
Still, Dickens said households appeared happy to borrow more, given unsecured credit rose by £1.4bn in April, above the 2015-to-19 average of £1.3bn.
“And we see plenty of room for households to take on more debt – the stock of unsecured credit was £23.1bn below its February 2020 level, equal to 1.5% of annual incomes.
“Note too that the proportion of adults reporting that they have borrowed more money compared to a year ago increased to 21% in mid-May, from 17% in mid-April, according to the ONS’ Opinions and Lifestyle Survey.”
Even so, Gabriella Dickens said Pantheon still expected real expenditure to fall in the second quarter, by around 0.5% quarter-on-quarter, given the severity of the drop in real incomes, the uneven distribution of savings, and the low level of consumer confidence.
“But real spending should rise slowly in the second half of the year as real incomes start to recover – thanks partly due to Mr Sunak’s interventions last week – and as the labour market remains relatively tight, convincing households that it is safe to take on a bit more debt.”
Looking at the fall in mortgage approvals, meanwhile, EY Item Club chief economic advisor Martin Beck noted that until recently, the housing market had remained “relatively resilient” to the squeeze on household finances and higher interest rates.
“But these forces are now starting to weigh on demand, with mortgage approvals falling to 65,974 in April, the lowest figure since June 2020 when the economy was coming out of lockdown, and net secured lending falling back to £4.1bn,” Beck said.
“The EY Item Club expects housing market activity to continue to cool as we move through 2022, with price growth decelerating.
“But with the impact of higher interest rates only feeding through gradually due to the high share of outstanding mortgages on fixed rate terms of two years or more, a soft landing looks likely unless the labour market outlook begins to deteriorate.”
Reporting by Josh White at Sharecast.com.