New data from the Bank of England shows mortgage approvals decreased “significantly” between August and September, falling from 74,400 to 66,800 – or a 10.2% month-on-month decrease.
This is also a 7.3% drop from the 72,061 approvals seen in September of last year. With approvals being an indicator of future borrowing, it is likely that transactions will fall correspondingly over the coming months.
This comes as a year of economic turbulence culminated in the now-infamous mini-budget which rocked the markets and the economy in September.
Despite this, net borrowing remained at £6.1 billion in September, above the past six-month average of £5.7 billion.
What’s more, despite approvals falling to 66,800, this is still higher than the past-six month average of 67,200. What is undeniable, however, is that a downward trend has arrived and is now taking its hold on the market as affordability is suffocated by rising interest rates and a spiralling cost of living.
Indeed, the effective interest rate on newly drawn mortgages increased by 29 basis points to 2.84% in September, the largest monthly increase since December 2021 when Bank Rate began rising. The rate on the outstanding stock of mortgages increased by seven basis points to 2.24%.
The industry’s reaction
“A dip in mortgage approvals was very much on the cards, particularly given the turbulence that rocked the sector towards the end of the September as a consequence of the government’s disastrous mini-budget,” said CEO of Octane Capital Jonathan Samuels, though he was keen to reinforce that all is not doom and gloom:
“However, while it’s fair to say that the market has shifted down a gear or two, September’s level of mortgage approvals doesn’t sit far off the average level seen over the last 12 months.
In fact, when you look at historic levels for this time of year prior to the pandemic property market boom, the latest sum of 66,789 actually sits marginally higher than the levels seen in September 2019, 2018 and 2017.
So while today’s decline will no doubt sow further seeds of panic that a market collapse is on the horizon, what we’re currently seeing at present is very much a return to normality.”
Further to this, Director of Benham and Reeves, Marc von Grundherr, said it was “important to note that we’re coming off the back of what is traditionally one of the busiest periods of the year for the UK property market. Therefore, it’s only to be expected that the level of buyers entering the market will start to cool gradually as we approach the end of the year.”
Richard Pike, Phoebus Software chief sales and marketing officer, added:
“This is the first sign that housing is being affected by the current economic situation. The double-hit of rising inflation and increasing interest rates is enough to give pause and, when finances are stretched, moving house falls down the priority list.
We saw warnings of redundancies from estate agent chains last week, which reflects the ebb in confidence and restricts the number of properties coming to market.”
Simon McCulloch, Chief Commercial & Growth Officer at Smoove, said:
“Last month saw a decrease in mortgage approvals for house purchases as former Chancellor Kwasi Kwarteng’s mini budget created instability across the housing market. Rising interest rates, lenders pulling products, and economic and political turbulence inevitably dented confidence and demand among prospective buyers already facing a cost-of-living crisis.
Nevertheless, with a new Prime Minster and Chancellor providing some form of stability, many of the UK’s largest lenders are now reducing mortgage rates again. This also comes as Rishi Sunak has been greeted with lower government borrowing costs, which will affect fixed mortgage rates going forward.”
