In a financial climate marked by uncertainty and soaring interest rates, mortgage approvals for house purchases and remortgaging have plummeted to depths not seen in years, according to the latest data from the Bank of England (BoE).
House purchase mortgage approvals reached their lowest point this year, while remortgaging approvals hit a staggering low not witnessed since January 1999. The September figures reflect a bleak picture for the UK housing market and the broader financial landscape.
The BoE’s recent Money and Credit report revealed a significant decrease in net mortgage approvals for house purchases, dropping from 45,400 in August to just 43,300 in September, demonstrating a clear downward trend.
Meanwhile, net approvals for remortgaging saw a more dramatic decline, plunging from 25,000 to 20,600 during the same period, marking the lowest level of remortgaging approvals in almost a quarter of a century. These figures illustrate the hesitancy among homeowners to seek better financing deals amid economic uncertainties.
The report also highlighted a notable decline in net borrowing of mortgage debt by individuals. In August, this figure stood at £1.1 billion but fell dramatically to -£0.9 billion in September, marking the lowest point since April 2023. This shift underscores consumers’ growing reluctance to take on additional debt as the cost of living continues to rise.
Gross lending, which quantifies the total amount of mortgage funds lent, fell from £19.4 billion in August to £18.6 billion in September. Meanwhile, gross repayments increased from £19.0 billion to £19.5 billion over the same period, signalling that fewer individuals are actively pursuing new mortgage agreements.
The effective interest rate on newly drawn mortgages saw a notable 19-basis point increase, pushing it to 5.01%. In contrast, the interest rate on the outstanding stock of mortgages also experienced an 8-basis point increase, rising from 3.06% in August to 3.14% in September.
Leading experts in the financial and housing sectors weighed in on these concerning developments. Steve Seal, the chief executive at Bluestone Mortgages, remarked, “Following a sharp fall in consumer confidence, it’s no surprise that mortgage approvals have sunk as consumers continue to battle affordability challenges. However, with expectations for homebuyer and homeowner support in the upcoming Autumn Statement, this could signal that hope is on the horizon.”
Joe Pepper, chief executive at PEXA UK, pointed out that the BoE figures continue to demonstrate “relatively poor housing market sentiment” as buyers, homeowners, and lenders grapple with the impact of 14 consecutive interest rate hikes. He warned that the economic situation remains challenging, despite the possibility that interest rates may have peaked, exacerbating the cost-of-living crisis for many.
Pepper did offer a glimmer of hope, noting that some lenders have competitively repriced their fixed-rate deals in an effort to stimulate activity, especially in the remortgage market.
Simon Webb, managing director of capital markets and finance at LiveMore, acknowledged that the sharp fall in net mortgage lending in September contrasted with the previous four months, which had seen an increase. He commented, “House prices are coming down, and there is more housing stock on the market, but higher interest rates are putting people off during a cost-of-living crisis. Remortgaging to a different lender is down to its lowest figure in almost 25 years, which I suspect means product transfer numbers are higher. It is easier for borrowers to stay with their current lender as they do not have to go through the affordability assessment in the same way that a remortgage requires.”
The data underscores the complex and challenging financial landscape facing homeowners and prospective buyers in the UK, with economic uncertainty and rising interest rates continuing to take their toll on the housing market.