BoE's Money and Credit report shows drop in new mortgages

Mortgage approvals for house purchases fell to 71,000 last month, down from January’s 73,800, according to the latest Bank of England monthly Money and Credit report.

The BoE’s data shows that purchases nonetheless remained above the 12-month pre-pandemic average of 66,700 up to February 2020.

Net borrowing of mortgage debt by individuals also decreased to £4.7 billion in February, when the BoE raised the base interest rate by a quarter point to 0.5%.

This was down from £5.9 billion in January, although the BoE stressed that it was still above the pre-pandemic average of £4.3 billion in the 12 months up to February 2020.

The actual interest rate paid on newly drawn mortgages rose by one basis point to 1.59%, the BoE said. The rate on the outstanding stock of mortgages also ticked up one basis point to 2.02%.

Read more: Mortgage professionals reflect on BOE rate hike

In response to the data, Roger Evans, director of home finance distribution at Gatehouse Bank, noted that while approvals for new mortgages were still high above pre-pandemic levels, the February fall suggested that low housing stock was starting to have an impact on the number of buyers seeking mortgages.

However, he added that the rush to beat rate rises should keep mortgage approvals above pre-pandemic norms “until at least the summer”. 

“Many people are acting on their long-held plans to move home, with a number of them still searching for larger homes to accommodate new hybrid and remote working lifestyles,” he said.

“When it comes to rate rises, the Bank of England’s direction of travel is well understood. All buyers will be conscious that to act quickly will mean they’ll likely beat further increases. This rush to secure properties sooner rather than later is probably going to keep approvals above the pre-pandemic norm until at least the summer, though continued softening is expected if stock levels do not start to bounce back.”

Nitesh Patel, strategic economist at Yorkshire Building Society, said the data suggested that economic activity was continuing to hold up “better than expected”.

However, he warned that there were signs that the cost-of-living crisis “might be beginning to bite” for some households.

He said: “Mortgage data suggests housing purchasing activity continued to hold up well, particularly when compared to the pre-pandemic figures for 2019.”

While acknowledging that mortgage lending figures were down from January, he pointed out that they were still high for the time of year, stressing that low borrowing costs, a strong job market and remote working would remain the key drivers “for the next few months”.

Read more: UK housing crisis – how big is the problem and what can be done about it?

Regarding savings, he noted that the stock of deposits grew by under £4 billion, down from £7.1 billion in January and smaller than the pre-pandemic 2019 average of £4.6 billion.

“With consumer price inflation rising at a faster rate than earnings growth some households may already be dipping into their savings to finance their spending,” he said.

“With real earnings expected to fall this year and if borrowing costs rise then this should dampen consumer spending and slow housing market activity, and particularly house price growth – which would be welcomed by potential first-time buyers.”

For his part, Paul Archer, senior manager of mortgage pricing at Nationwide Building Society, was upbeat, describing the overall picture as “pretty balanced”.

He said: “It is difficult to discern trends from one set of data points! Gross lending was actually up in February, so there is still robust front-end demand. Moreover, Zoopla data suggests more properties are now coming to market to meet this level of demand, market fundamentals (in particular, labour markets) remain strong and remortgage continues to perform strongly.”

Despite this, there were reasons to remain cautious, as net borrowing was down due to an offsetting impact in repayments.

“This may suggest that people are choosing to repay debt at a quicker rate than before – potentially selling up and downsizing. Average pay rates have increased over 2022 due to a change in the future outlook for base rate, which may start to impact affordability for some customers. Overall, the market remains in a good space and higher than pre-pandemic levels,” he concluded.

Richard Fearon, the CEO of Leeds Building Society, told Mortgage Introducer: “There is always a level of volatility in monthly numbers but, looking at the year-to-date position, it’s clear that mortgage activity remains robust and at stronger levels than pre-pandemic.

“February was a record month for Leeds Building Society, and I remain confident in the outlook for the market despite some of the headwinds.”