Experts were not surprised by the figures
Net borrowing of mortgage debt by individuals decreased to £3.2 billion in December from £4.3 billion in the previous month, data released by the Bank of England (BoE) on Tuesday has revealed.
Gross lending fell from £25.1 billion in November to £23.3 billion in December, while gross repayments were broadly unchanged at £21 billion.
Mortgage approvals for house purchases, an indicator of future borrowing, also decreased to 35,600 in December from 46,200 in November – the lowest since May 2020 and the fourth consecutive monthly decrease in mortgage approvals.
The central bank noted that if the onset of the COVID-19 pandemic and the period immediately thereafter is excluded, house purchase approvals are at the lowest level since January 2009, when the total was just 32,400.
The BoE’s latest Money and Credit statistical release also showed that approvals for remortgaging, which only capture remortgaging with a different lender, fell to 26,100 in December from 32,600 in November, the lowest level since January 2013, which recorded 25,800.
The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by 32 basis points to 3.67% in December, the largest monthly increase since December 2021, when the BoE started raising the base rate.
“December’s Money and Credit data from the Bank of England will come as no surprise, as the final quarter of 2022 was a challenging one for the economy and the mortgage market,” Stuart Wilson, chairman of Air Club, commented. “Many prospective homebuyers will have delayed their plans to purchase a home in the lead up to Christmas, in the hope that the economic volatility would level out or prices may soften.
“Looking to the future, while there is still the prospect of a housing market correction, rates have stabilised not fallen and residential mortgage affordability criteria have – if anything – tightened.”
Phil Gamblin, founder of Cardiff-based mortgage broker Oak Financial, agreed that the drop in mortgage approvals in December was unsurprising following the mini budget and given the usual seasonal lull.
“We’ve seen a large number of enquiries from home buyers and remortgagers alike in January, suggesting that the turmoil felt at the end of 2022 is dying down and confidence is returning to the market,” Gamblin added. “If, as expected, the Bank of England raises rates again this week, I don’t expect this to have a massive effect on the property market.
“Mortgage rates have been coming down consistently over the past couple of months and lenders are now firmly entering ‘rate war’ territory. This will only encourage buyers further. I don’t think the huge price drops that some are predicting are going to materialise, all the more so given the lack of stock.”
For Paul McGerrigan, chief executive at fintech brokerage Loan.co.uk, while the property market should improve during January, economic uncertainty and the Bank of England’s pressure on interest rates will continue to have an effect.
“Pressures on borrowers is sure to mount after the bank’s Monetary Policy Committee decision on interest rates on Thursday – a 0.5% increase looked a shoo-in, but there have been a few suggestions that 0.25% might prevail,” he said. “Any increase will hurt borrowers in the short term.
“There may be light at the end of the tunnel as some traders are pricing in a rate reduction later in the year to kickstart the economy once inflation has significantly reduced.”
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