Mortgage approvals are at the highest level since September 2022 according to Bank of England data. Laith Khalaf, head of investment analysis at AJ Bell, shares his expert views on the UK property market.
“The property market is looking perky as mortgage approvals reached their highest level in almost two years. Net mortgage approvals for house purchases hit 62,000 in July according to the Bank of England, the highest reading since September 2022.
“Meanwhile house prices have jumped at the fastest annual pace since December 2022, rising by 2.4% in the year to August according to Nationwide. We’re now only 3% shy of the record level reached in the summer of 2022. Rising house prices are of course a double-edged sword, providing comfort to homeowners while delivering despair to those desperately trying to get on the housing ladder.
“There are a number of factors behind the tick up in the property market, but chief amongst them are falling mortgage rates. The Bank of England has just cut interest rates for the first time since 2020, and expectations of looser monetary policy have been feeding into mortgage rates for some time now. The good news for borrowers is there are more rate cuts pencilled in, with markets expecting base rate to fall to 4% by the summer of next year.
“We’re also seeing competition in the mortgage market leading to lenders loosening their purse strings a bit. Lloyds is launching a new mortgage for first time buyers which will allow them to borrow up to 5.5 times their annual income, a big jump from the 4.5 times ratio normally allowed. Looser lending requirements might start to ring alarm bells for those who remember the build up to the financial crisis, when unaffordable borrowing ended up pushing banks, homebuyers and everyone else into a deep dark pit from which we are still emerging. Lloyds will at least be requiring a minimum 10% deposit for this mortgage product, which provides some security for the bank, and a bit of a buffer for homebuyers from falling into negative equity.
“Tax on cash interest appears to be high on the agenda for savers, with ISA sales continuing to impress. UK households put £3.8 billion into Cash ISAs in July according to the Bank of England. The October Budget is looming on the horizon and we know it’s not going to be pretty. The Chancellor has committed to not raising the rate of income tax, but that doesn’t preclude sneakier measures to raise the income tax take, such as extending frozen allowances, restricting pensions tax relief, or indeed, cutting the Personal Savings Allowance. We don’t know how likely it is any of these measures will see the light of day, but the message from the top of the Labour party seems to be that a mighty tax reckoning is coming. Best to make full use of available tax shelters then, to dull the blow.”
