UK mortgage approvals surprise upwards

by | Oct 1, 2022

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Mortgage approvals spiked in August, official data showed on Friday, as homebuyers scrambled to secure loans amid rising interest rates.
According to the Bank of England, house purchase mortgage approvals rose “sharply” to 74,300 from 63,700 in July. It is highest level since January, when interest rates were 0.25%, and well above consensus forecasts of around 62,000.

Net borrowing of mortgage debt by individuals increased to £6.1bn from £5.1bn a month earlier and was well above the 12-month pre-pandemic average up to February 2020 of £4.3bn.

The cost of borrowing has jumped this year as the BoE looks to tackle surging inflation, with interest rates now at 2.25%.

Following the turmoil across markets this week, however, when the government’s mini-budget caused the pound to plummet and forced the BoE to start buying up gilts, analysts now expect rates to continue rising sharply.

The effective interest rate – the actual interest rate paid by borrowers – on newly-drawn mortgages increased by 22 basis points in August, and by 5% on outstanding mortgages to 2.17%, the BoE said.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The sudden leap in house purchase mortgage approvals in August likely reflects people attempting secure loans ahead of expected increases in mortgage rates, rather than a fundamental strengthening of demand; other reliable indicators of house purchase demand has weakened recently.

“Meanwhile, the disruption caused by the chancellor’s tax cuts means that mortgage rates now are on course to surge to just over 6% next year, compared to 1.64% at the start of this year, if markets are right about the path for the bank rate.

“Even if potential buyers pass affordability tests, many of them will be reluctant to commit to such high repayments.”

Friday’s data from the BoE also showed a jump in consumer credit, with individuals borrowing an additional £1.1bn in August. Of that, £700m was on credit cards and £400m through other forms of credit, such as personal loans or car finance.

The annual growth for all consumer credit was unchanged at 7.0%, the highest since March 2019, when it was 7.2%. The annual growth rate for credit card borrowing was also unchanged at 12.9%, the highest since October 2005.

Tombs said that households were saving less and borrowing more, “in an attempt to maintain their real spending amid the surge in CPI inflation”.

According to data released on Friday by Nationwide, UK house prices held steady in September. But the building society also warned there had been “further signs of a slowdown in the market”, with surveyors reporting a decline in new buyer enquiries.

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