Approvals for house purchases decreased for the fifth consecutive month
Net borrowing of mortgage debt by individuals decreased to £2.5 billion in January from £3.1 billion in the previous month, according to lending data released by the Bank of England (BoE) on Wednesday.
Gross lending, however, slightly increased from £23 billion in December to £23.3 billion in January, while gross repayments rose from £21.1 billion to £21.5 billion.
Net approvals for house purchases, an indicator of future borrowing, decreased to 39,600 in January from 40,500 in the prior month – the fifth consecutive monthly decrease in approvals for house purchases.
The BoE noted that if the onset of the COVID-19 pandemic and period immediately thereafter is excluded, January 2023’s house purchase approvals were the lowest since January 2009, when the number was 32,400.
Approvals for remortgaging, which only capture remortgaging with a different lender, fell to 25,400 in January from 26,200 in December, the lowest level since July 2012.
The central bank’s latest Money and Credit report also revealed that the ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by 21 basis points from 3.67% to 3.88% in January. The rate on the outstanding stock of mortgages increased by four basis points to 2.54%.
“Mortgage approvals have sunk lower again as a result of the mini budget, consecutive hikes to the base rate, as well as the continued squeeze on personal finances,” Steve Seal, chief executive at Bluestone Mortgages, commented. “Though lenders have resumed activity since the aftermath of the mini budget, there are still affordability challenges that lie ahead, which will undoubtedly affect the homeownership dreams of many.”
Paul McGerrigan, chief executive at fintech brokerage Loan.co.uk, added that the picture is unlikely to change over the coming months.
“Inflation still remains stubbornly high, and, reading between the lines of Bank of England chief economist Huw Pill’s recent speech at Warwick University, there is still action for the Monetary Policy Committee to take in order to see rates move back to the 2% target – a hint perhaps that there could be another interest increase pending – which is sure to dampen the property market further in the immediate future,” McGerrigan said.
“However, economic indicators point to a more positive outlook in the second half of 2023, and once inflation and interest rates are more stable, buyers will gain confidence and return to the market in greater numbers.”
Lisa Martin, development director at TMA Club, remarked that the latest lending figures reflect the challenges faced by consumers, especially in light of the rising cost-of-living and changing mortgage rates.
“As lenders continue to tweak pricing as swap rates move, seeking professional advice to find the most suitable product for them is essential for homebuyers and remortgagers at this time,” she stated. “However, there are some reasons to be optimistic. Not only has demand been greater than expected in the early stages of this year, but competition between lenders has driven down mortgage rates with the average five-year fixed falling below 4% in early February for the first time since the government’s mini budget.
“While an unpredictable market means we may see rates start to rise again, as a result of the short-term swap rates rising, rates are, at present, relatively low compared to recent history. Brokers should bear in mind the financial pressures that many homebuyers will be feeling and ensure they have a holistic understanding of each individual customer’s circumstances in order to provide the bespoke advice needed, especially at this time.”
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