Net borrowing of mortgage debt by individuals decreased from £1.1 billion in August to -£0.9 billion in September – the lowest since April 2023 (-£1.3 billion), data released by HM Revenue & Customs and the Bank of England has revealed.
Gross lending fell from £19.4 billion in August to £18.6 billion in September, while gross repayments rose from £19.0 billion to £19.5 billion over the same period.
Net approvals (that is, approvals net of cancellations) for house purchases, which is an indicator of future borrowing, continued to fall from 45,400 in August to 43,300 in September, the lowest level since January 2023 (39,900) (Chart 1). Net approvals for remortgaging (which only capture remortgaging with a different lender) continued to decline from 25,100 in August to 20,600 in September, the lowest level since January 1999 (18,300).
The “effective” interest rate – the actual interest paid – on newly drawn mortgages rose by 19 basis points to 5.01% in September. Similarly, the rate on the outstanding stock of mortgages saw an 8 basis point increase, from 3.06% in August to 3.14% in September.
Joe Pepper, Chief Executive Officer, PEXA UK, said that the figures continue to demonstrate “relatively poor housing market sentiment as buyers, homeowners and lenders alike digest the impact of 14 consecutive interest rate hikes”. He continued:
“And while it’s possible that we have seen rates peak, this weak data shows that we are far from out of the woods. What is clear is that this unprecedented interest rate spiral has taken compounded the cost-of-living crisis for hundreds of thousands of consumers.”
Simon Webb, managing director of capital markets and finance at LiveMore, said that the “sharp fall” in net mortgage lending in September is in “stark contrast to the previous months where net lending increased”. He continued:
“However, a fall was expected as mortgage approvals have been declining for the past three months as less people consider moving home. House prices are coming down and there is more housing stock on the market, but higher interest rates are putting people off during a cost-of-living crisis.
Remortgaging to a different lender is down to its lowest figure in almost 25 years, which I suspect means product transfer numbers are higher. It is easier for borrowers to stay with their current lender as they do not have to go through the affordability assessment in the same way that a remortgage requires.”
On a more positive note, Pepper said that the “good news” is that “we have seen a flurry of competitively repricing their fixed-rate deals in attempt to stir activity – this is likely to help stimulate remortgage activity”. He added:
“Looking ahead however, as we do see mortgage rates fall back, it’s important that the mortgage market is equipped to handle the demand it will see as consumers seek to pare back their outgoings. With consumer outcomes front of mind for the regulator too, that will involve creating a simpler, faster and more manageable remortgage and conveyancing process.”
CEO of Octane Capital, Jonathan Samuels, commented:
“It was certainly a case of too little too late with regard to the Bank of England’s attempts to curb inflation with a slow but steady approach to increasing interest rates. Now it seems as though it’s a case of the same with respect to their decision to freeze them, with mortgage approvals now reducing for the third consecutive month in a row.
While the increasing cost of borrowing may have finally halted, it remains considerably higher than many modern day buyers are used to and this has been the primary deterrent in the current market, with buyer levels reducing, transaction numbers following suit and house price cooling.”
Katie Pender at Target, said:
“The UK housing market is in a state of flux and it is very likely that it will stay that way at least until the end of the year, and into 2024. However, lenders need to lend, and we have seen many lenders offering more favourable rates recently. Whether the current deals on offer will be enough to tempt people to buy, or even fix, remains to be seen. Confidence may be low but if the prime minister’s pledge to halve inflation before the end of the year comes true, we may see the market pick up earlier than many have predicted. What is certain is that this is the time for more government intervention into what is an increasingly broken housing market.”
One Response
There is a lot of stock on the market and not enough buyers. If buyers were thinking ahead and being clever, they would take the hit on the interest rates and start putting offers in much below asking on properties in order to get a deal. As it is, a lot of buyers are being scared off and will only return when the interest rates come down. What will happen then? More buyers fighting over houses and the prices will go up again. If buyers can afford the interest rates now, get a deal on a house and then remortgage when the rates come down.