Mortgage approvals drop to levels last seen in aftermath of financial crisis, as higher interest rates leave buyers ‘reluctant to commit’ to a new home
- Bank of England data shows 2.3% drop in new mortgages agreed in January
- It was fifth monthly fall in a row as homeowners see rises in mortgage payments
- Brokers says they are ‘reluctant to commit’ to new home loans
The number of mortgages approved for house purchases is currently as low as it was in the aftermath of the global financial crash in 2009, according to new data from the Bank of England.
Approvals dropped 2.3 per cent in January to 39,600, down from 40,500 in December, the most recent figures show.
It was the fifth monthly fall in a row, as many homeowners see rises in their mortgage payments and household finances continue to be squeezed.
The data also shows total mortgage borrowing fell 19 per cent in January to £2.5billion.
Mortgage approvals continue to fall as higher interest rates put off would-be buyers
At the same time lending increased from £23.0 billion in December to £23.3 billion, while gross repayments climbed 2 per cent to £21.5 billion.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘At first sight the numbers are rather gloomy, with net borrowing of mortgage debt falling in January compared with December, while mortgage approvals for house purchases also dipped.
‘This is at least partly down to the average rate on new mortgages continuing to rise significantly, increasing by 21 basis points to 3.88 per cent in January.
‘As borrowers will be all too aware, this comes on the back of significant increases in the average rate paid over the previous four months. It is no surprise that borrowers have been reluctant to commit to new mortgages.’
The ‘effective’ interest rate – the actual interest rate paid – on new mortgages increased by 21 basis points from 3.67 per cent to 3.88 per cent in January.
Meanwhile, the rate on existing mortgages increased by 4 basis points, to 2.54 per cent.
While mortgage rates have slowly fallen since the start of the year, they are still well above the lows seen in 2021. It is thought the increase will continue to weigh on the market as higher rates prevent first time buyers getting on the property ladder, even as house prices are falling.
Some mortgage lenders have reduced their rates below 4 per cent in recent weeks, but these low rates could soon start to tick up again according to some forecasts.
‘A number of lenders have reduced their fixed-rate mortgage pricing. We are not necessarily out of the woods just yet as swap rates, upon which fixed-rate pricing is based, are edging upwards once more,’ Harris added.
‘Borrowers would be wise to seek advice before holding off or jumping in with both feet.’
Consumer borrowing rose in January highlighting the impact of the cost of living crisis
The impact of the cost-of-living crisis can also be seen in the figures as individuals borrowed an additional £1.6 billion in consumer credit in January – the highest net borrowing since June 2022.
The additional consumer credit borrowing in January comprised £1.1billion of borrowing on credit cards, rising from £0.2billion of net repayments in December.
There was also £0.5 billion of borrowing through other forms of consumer credit, such as car dealership finance and personal loans.
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