Sharp fall in mortgage approvals amidst “sizeable fall in demand”

New data from the Bank of England has revealed mortgage borrowing fell sharply in December as the macroeconomic headwinds of late 2022 begin to take their hold on the market.

The Bank said net borrowing of mortgage debt by individuals decreased from £4.3 billion to £3.2 billion in December – a decrease of over a quarter.

The number of approvals for houses also fell month-on-month from November, dropping by nearly 11,000 – or 23% – from 46,200 to 35,600.

This comes as the interest rate paid on new mortgages increases by 32 basis points to 3.67% across the month.

Mortgage lending. Source: Bank of England

The data shows a housing market “in the midst of a significant slowdown”, said Karen Noye, mortgage expert, Quilter, adding that the past few months have seen a “sizeable fall in the level of demand” amidst rising rates.

This was echoed by Simon McCulloch, Chief Commercial & Growth Officer, Smoove:

“The sharp drop in net borrowing and mortgage approvals in December 2022 is a clear symptom of the tough macro-economic environment seen in the final months of the year.

A series of consecutive hikes to the base rate, compounded with the prolonged effects of September’s mini budget and the typically quieter Christmas period, evidently deterred many prospective borrowers in December.”

Simon Webb, MD, LiveMore, noted that, while December is traditionally a slower month, December marked the lowest level of approvals since the depths of the financial crisis in January 2009 when ignoring Covid lockdowns, something he describes as a “strong reflection on the rapid rise in mortgage rates, high inflation and the cost of living crisis”.

With Threadneedle Street very possibly set to increase the base rate once again on Thursday – perhaps to as high as 4% – Nokes suggested any fall in mortgage rates “will be a while off yet” and could see homemoving taken off the cards for many. McCulloch shared a similar sentiment saying mortgage activity “may remain muted” over the remainder of this year, though noted this trend may not last:

“Given time […], the market will begin to adapt to this new environment of higher interest rates. Combined with the underlying shortage in housing stock, we can expect the UK market to regain some of its past momentum following the unprecedented challenges of recent months.”

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