Is the pandemic-induced property market boom fizzling out?

House price growth was strong to start the year, but a month-on-month dip in mortgage approvals has caused many to speculate that the pandemic property market boom may soon fizzle out.

The latest market analysis from specialist property lender Octane Capital has revealed that the heat may have already left the market when it comes to new homebuyer activity, with the volume of mortgages approved on house purchases barely climbing on an annual basis.

An analysis of Bank of England mortgage data has shown that there were almost 1.6 million mortgage approvals during the last financial year of 2021–22, a 10% increase on the previous year.

A total of 894,393 of these came via house purchases, accounting for 57% of all mortgage approvals.

Read more: UK Finance: Housing market experiences ‘unprecedented boom’.

However, Octane Capital pointed out that while homebuyers remain by far the most active segment of the market, this level of activity increased by just 1% when compared to the previous financial year of 2020–21.

During the initial pandemic year of 2020–21, 884,482 mortgages were approved for house purchases, accounting for 62% of total mortgage approvals and climbing by a considerable 11% when compared to the previous financial year of 2019–20.

Octane Capital stressed that while the latest level of annual mortgage approvals on house purchases remains at a high, the drastic reduction in the annual rate of growth suggests that the heightened market activity driving the current pandemic property market boom is starting to flatten.

“The level of buyers being approved for a mortgage on a house purchase has continued to climb year-on-year and remains incredibly high,” Jonathan Samuels, chief executive at Octane Capital, said.

“So, in this sense, the property market is still running extremely hot, although it certainly seems to have hit the ceiling with the volume of mortgage approvals for house purchases climbing by just 1% versus the previous year.”

Samuels added that a fourth consecutive interest rate increase and the likelihood of more to come is expected to dampen this buyer demand further as this year goes on, with mortgage approvals through house purchases likely to drop as a result.

“A hat-trick of base rate increases towards the end of the last financial year will have no doubt contributed to this reduction in buyer appetites and, in contrast, we’ve seen a sharp uplift in those remortgaging to secure better rates ahead of any further interest rate hikes,” he said.

“With a fourth increase coming so soon in this financial year, there’s a very good chance that the market will now start to deflate, bringing property values back down to earth and returning the market to a state of pre-pandemic normality.”

Increasing interest rates have spurred a greater level of growth from those being approved for a mortgage when remortgaging their existing property, and remortgages accounted for 32% of all mortgage approvals during the last financial year, totalling 501,501.

While this remains a smaller market segment compared to those purchasing a house, the level of homeowners remortgaging climbed by 23% year-on-year, versus the 1% increase of those purchasing a house.