Mortgage approvals have hit an eight-month low, impacted significantly by rising interest rates affecting potential buyers.
Last month, banks sanctioned 43,300 mortgages, a figure reported by the Bank of England to be the lowest since January. During that time, the market was still recovering from the mini-budget aftermath and the subsequent gilt markets crisis.
This represents a roughly one-third decrease in lending volumes compared to the same period last year, bringing the mortgage market back to activity levels consistently seen in the years post-financial crisis.
This downturn in mortgage approvals comes as the Bank of England’s policymakers, under the leadership of Governor Andrew Bailey, gear up for the upcoming interest rate meeting on Thursday. The consensus among economists is that the Monetary Policy Committee will maintain the interest rates at 5.25%, as they evaluate the effects of the heightened borrowing costs on the broader economy.
In the same month, the average interest rate on new mortgages escalated to 5.01%, marking the first instance since 2008 where the average borrower has faced interest rates exceeding 5%. To put this into perspective, the typical interest rate was 2.84% a year ago, and just 1.78% two years back.
The total mortgage debt saw a reduction of £940m as homeowners opted to pay down their debts, surpassing the amounts borrowed by new homeowners.
Additionally, the practice of remortgaging has lost its appeal due to the prevailing high interest rates. A mere 20,500 borrowers chose to remortgage last month, a number not seen since January 1999.
Thomas Pugh, an economist at RSM, interprets these low activity levels as a sign that “house prices are likely to decrease further.”
He adds, “Admittedly, we might see a slight decrease in interest rates on new mortgages over the next few months as interest rates appear to have reached their peak. However, they are expected to stay near the highest levels seen since the financial crisis. We are anticipating a fall in house prices from peak to trough of just under 10%.”
