United Kingdom

UK mortgage approvals edge up but are down on last year’s levels

UK mortgage approvals rose more than expected in February but remained below their level in the same period last year as high borrowing costs continued to curb property spending, according to Bank of England data.

Lenders approved 43,500 mortgages last month, up from 39,600 in January, according to the central bank on Wednesday. The figure was above the 42,000 forecast by analysts and marked the first monthly increase since August 2022.

“Demand is slowly rebuilding now that mortgage rates are starting to stabilise and more products are available as we enter the crucial spring period,” said Jeremy Leaf, north London estate agent and a former Royal Institution of Chartered Surveyors residential chair.

The rise in mortgage costs follows a string of interest rate increases by the central bank as it tries to tame inflation. Last week, the BoE increased rates by a quarter of a percentage point to 4.25 per cent. 

The central bank’s benchmark rate was at near zero levels at the end of 2021.

Mortgage approvals have been falling since September 2022, when former prime minister Liz Truss’s unfunded tax cut plans drove up borrowing costs, destabilising the housing market and prompting some lenders to withdraw home loans.

An indicator of future borrowing, mortgage approvals remained well below their level at the same time last year, when they stood at 69,131, as well as about 35 per cent below pre-pandemic levels. 

Mark Harris, chief executive of mortgage broker SPF Private Clients, said the rise in approvals was “perhaps surprising, when you consider that the average rate on new mortgages [is] continuing to rise significantly”.

The BoE said the effective interest rate — the actual interest rate paid on new mortgages — rose 36 basis points to 4.24 per cent in February. 

“Higher interest rates were a further drag on lending in February, particularly in the housing market,” said Ashley Webb, UK economist at Capital Economics. 

Net mortgage lending decreased to £700mn in February, down from £2bn the previous month. Net borrowing of mortgage debt was at its lowest level since April 2016, excluding the onset of the Covid-19 pandemic.

But higher rates “appear to be having less of a drag in other areas of the economy, as households continue to borrow to support spending”, added Webb. 

The data showed that the amount people borrowed to finance their spending eased only marginally in February, falling to £1.4bn from £1.7bn in the previous month. 

The research comes as the Office for National Statistics announced last week that British retail sales rose above analysts’ expectations in February, rebounding for the second month in a row.

The BoE data also showed that households added to their savings in February, depositing an additional £1.6bn with banks and building societies, compared with £3.3bn in January. 

“Those households with savings are moving them to longer term accounts that pay more interest,” said Thomas Pugh, economist at RSM UK. Net flows into time deposits remained strong at £6.8bn in February, decreasing only slightly from £7bn in January.


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