BoE: Home buyer mortgage approvals dive 10%


Mortgage approvals for home buyers dropped 10 per cent in September, according to official data, as analysts predict a ‘collapse’ in demand. 

The number of loans approved for house purchases decreased significantly to 66,800 in September from 74,400 in August, the Bank of England’s Money and Credit data has shown.

Much of the month covered the period before the ill-fated mini-Budget on 23rd September after which mortgage rates spiked even higher.

The figure, which indicates a future slowdown in housing transactions, comes amid higher mortgage rates, which remain above 6 per cent on average, and the cost of living concerns being felt by many households. 

Approvals down: While net mortgage borrowing stayed the same at £6.1billion in September, the number of new home loans approved dropped – suggesting a future fall in house purchases

The interest rate paid on new mortgages also increased by 29 basis points to 2.84 per cent in September – the biggest increase since December 2021 when the Bank of England began increasing its base rate in an attempt to combat rising inflation. 

But this is far lower than the average interest rates being quoted to borrowers today, which sit at 6.50 per cent for two-year fixes and 6.36 per cent for five-year fixes, according to the latest Moneyfacts data.

This is because mortgage rates are usually set in place up to six months in advance of the first payment, meaning that the typical rate could increase dramatically in future reports as the effects of base rate rises and the mini-Budget become evident. 

Our mortgage calculator lets you compare rates you could get based on your home’s value and loan size. 

Analysts continue to forecast house price falls in 2023 and beyond, with estate agent JLL saying today that prices would drop 6 per cent next year and that first-time buyer numbers could drop to half their pre-financial crisis levels (see ‘Fresh predictions for house price falls’ below). 

Separately, Capital Economics senior property economist Andrew Wishart said that the spike in mortgage rates following the mini-Budget would turn the ‘slowdown’ in demand for buying homes into a ‘collapse’. 

It came as the firm said in a report on the state of the UK economy: ‘We no longer think that the coming recession will be a mild one and instead we think it will be similar in size to the recessions of the mid-1970s and early 1990s.’

The Bank of England’s Monetary Policy Committee will meet again this Thursday and is expected to increase the base rate by 0.75 percentage points, the largest rise yet, taking it to 3 per cent.

Bank of England rises have had the effect of driving up mortgage rates, however, these were accelerated following former prime minister Liz Truss and Chancellor Kwaso Kwarteng’s mini-Budget on 23 September, which rocked confidence in the UK economy by announcing unfunded tax cuts.

Looking to buy? Analysts are forecasting that the number of people deciding to move home could plummet - but agents say existing purchases are largely continuing

Looking to buy? Analysts are forecasting that the number of people deciding to move home could plummet – but agents say existing purchases are largely continuing

Housing market experts said that the number of people taking out new mortgages could therefore be set to fall further in October’s figures.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: ‘These figures are already starting to reflect house buying intentions before the mini-Budget of 23 September.

‘On the ground, the situation deteriorated further in the weeks following when uncertainty over mortgage payments came on top of worries about the increasing cost of living.

‘Fortunately, most of those approvals are resulting in sales as buyers wish to take advantage of rates already secured which are unlikely to be repeated for some time.

‘Mortgage rates are starting to come down too which has helped restore some of the lost demand albeit rather slowly but most sales are continuing, not collapsing.’

Net borrowing of mortgage debt by individuals remained at £6.1 billion in September, according to the BoE, above the six-month average of £5.7 billion.

Meanwhile the average rate across all outstanding mortgages increased by 7 basis points in September to 2.24 per cent.

While mortgage rates rocketed since the mini-Budget, some lenders – including Natwest, HSBC and Virgin, have begun to reduce them slightly.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘Thankfully, the situation has eased for borrowers since the worst of the fallout from the mini-Budget.

‘With another interest rate rise likely this week, borrowers concerned about their mortgage should seek advice from a broker to find out what options are available.’

Fresh predictions for house price falls

Separately, Capital Economics has reiterated its forecast that UK house prices will fall 12 per cent by mid-2024, sating that high mortgage rates would cause demand to ‘collapse’. 

The analyst firm said that quoted mortgage rates might have already reached their post-mini-Budget peak, but that they would be unlikely to fall significantly for some time. 

Interest increase: Mortgage interest is set to make up a higher percentage of household income, according to Capital Economics

Interest increase: Mortgage interest is set to make up a higher percentage of household income, according to Capital Economics 

Senior property economist Andrew Wishart said: ‘The drop back in market interest rates now that sober policymaking has returned means we may have already seen the peak in quoted mortgage rates.

‘But hopes that mortgage rates will fall back significantly and quickly are misplaced. The adjustment to higher mortgage rates will cause transactions and mortgage lending to be very weak for the next two years.

 Hopes that mortgage rates will fall back significantly and quickly are misplaced

‘That will turn the slowdown in demand already evident in the survey data into a collapse, as higher interest rates make it too expensive for many prospective buyers to borrow enough to purchase a home.

‘Even though mortgage rates are likely to drop back to 4 per cent by 2024, we suspect that house prices will have to fall by 12 per cent before affordability improves enough for demand to recover and the fall in prices to bottom out.

Given increasing mortgage rates and households’ concerns over the rising cost of living, most analysts continue to predict that UK house prices will decrease in 2023 – with some saying they could drop by up to 30 per cent.

But estate agent and property consultancy JLL has issued a report predicting a 6 per cent fall next year, putting it among the more optimistic forecasts.

Price movements: JLL's predictions for UK house prices in percentage terms. The estate agent has forecast a 6% drop in 2023 and then 1% growth the following year

Price movements: JLL’s predictions for UK house prices in percentage terms. The estate agent has forecast a 6% drop in 2023 and then 1% growth the following year

In the report, Marcus Dixon, director of UK residential research at JLL, said that house price falls were unlikely to be as severe as in the two previous UK recessions.

‘A spike in borrowing costs – and an anticipated further steep rise in mortgage rates – alongside continued high inflation, the cost-of-living crisis and an impending recession have prompted predictions from the most bearish forecasters of 20 per cent to 30 per cent fall in UK house prices,’ he said.

‘But these predictions fail to recognise that UK house prices have never fallen by more than 20 per cent. And this prompts a question of whether the underlying market prospects are truly worse than the two previous crashes – the early 90s recession where house prices fell 20 per cent cumulatively between 1989 and 1993 and the Global Financial Crisis where prices fell by 15 per cent between Jan 2008 and May 2009.

Dixon said that house prices would be shored up to an extent by the fact that unemployment rates today were much lower than in the 1990s recession, and that the poor lending practices which contributed to the global financial crisis were now a thing of the past.

Rare: JLL has said that the UK rarely experiences dramatic house price falls, and that prices have never fallen by more than 20%

Rare: JLL has said that the UK rarely experiences dramatic house price falls, and that prices have never fallen by more than 20%

Demand down: The estate agent did say that the number of people buying new homes was likely to go down, with a particular fall-off among first-time buyers

Demand down: The estate agent did say that the number of people buying new homes was likely to go down, with a particular fall-off among first-time buyers 

He pointed out that the housing market of today was ‘built upon much stronger foundations,’ citing JLL analysis of the Bank of England Mortgage and Lending Report which found that 62 per cent of the UK’s 8.4million mortgaged owner occupier households have at least 25 per cent equity in their house.

Just 0.2 per cent or circa 17,000 owner occupied households in the UK had less than 5 per cent equity.

However, while JLL’s house price predictions were relatively optimistic, it did say that housing transactions would fall, and that first-time buyer numbers could drop substantially.

Dixon added: ‘JLL predicts there will be a steep fall in UK housing transactions. The number of first- time buyers before the Global Financial Crisis typically totalled 400,000 per annum out of a total of circa 1.5million annual transactions.

‘Post financial crisis, FTBs fell to 325,000 and total transactions to 1.2million. JLL predicts there will now be circa 200,000 viable FTBs with sentiment among aspiring homeowners taking a hit.’

What to do if you need a mortgage 

Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, have been urged to act but not to panic.

Banks and building societies are still lending and mortgages are still on offer with applications being accepted. 

Rates are changing rapidly, however, and there is no guarantee that deals will last and not be replaced with mortgages charging higher rates. 

This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value

What if I need to remortgage? 

Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate. 

Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal. 

Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to  higher mortgage rates limiting people’s borrowing ability.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.

You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.

> Check the best fixed rate mortgages you could apply for 

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