Mortgage approvals fall to lowest level – BoE report

Approvals for house purchases – an indicator for future borrowing – decreased in November

Mortgage approvals fall to lowest level – BoE report

Net borrowing of mortgage debt by individuals rose in November 2022, but mortgage approvals for house purchases fell to its lowest level since mid-2020, according to lending data released by the Bank of England (BoE) on Wednesday.

The central bank’s latest Money and Credit report showed that net borrowing of mortgage debt by individuals increased from £3.6 billion to £4.4 billion in November.

Gross lending decreased from £27.7 billion in October to £25.7 billion in November, while gross repayments dropped from £25.8 billion to £21.6 billion.

Mortgage approvals for house purchases – an indicator for future borrowing, however, decreased to 46,100 in November from 57,900 in October, the lowest level since June 2020, when the number of approvals was 40,500.

Approvals for remortgaging, which only capture remortgaging with a different lender, fell to 32,500 in November from 51,300 in October, and were below the previous six-month average of 48,100.

The BoE report also revealed that ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by 26 basis points, to 3.35% in November.

“As expected, the average rate paid on new mortgages rose significantly,” Mark Harris, chief executive of mortgage broker SPF Private Clients, commented. “As borrowers will be all too aware, this came on the back of a significant increase in the average rate paid in both September and October.

“Thankfully, the situation has eased for borrowers since the worst of the fallout from the mini budget. Lenders have been returning with more attractive fixed-rate mortgages as swap rates have settled, albeit at a higher level than in the recent past. We expect this to continue into the new year as lenders compete for business and try to attract new customers.”

Gareth Lewis, commercial director of property lender MT Finance, said the figures clearly show the squeeze consumers are facing.

“Purchase approvals are down, showing that many people stopped and took stock in November as rates continued rising, wondering how high they were going to go and whether they could afford the purchase they were considering,” he added. “Those who aren’t forced into a move may well be wondering whether they should put that purchase on hold for now and wait until the outlook becomes clearer.

‘It’s not all doom and gloom – once people get their heads around the true cost of getting on to, or moving up, the property ladder and inflation starts to stabilise, buyers will appreciate their true affordability and better understand what they can commit to.”

For Marcus Wright, managing director of independent mortgage broker Bolton Business Finance, the sharp fall in mortgage approvals shows the impact of base rate rises and the cost-of-living crisis.

“Many people are now shocked at how high mortgage rates currently are,” he said. “Higher rates potentially mean that affordability checks and stress tests are harder to pass.”

Jason Ferrando, founder and chief executive at easyMoney, remarked that a third consecutive monthly decline in mortgage approval levels certainly seemed like a cause for concern “given the doom and gloom that has enveloped the UK property market in recent months.”

However, he said that when viewed in a longer term context, this was just a return to the pre-pandemic norm, “albeit a rather bumpy landing, rather than the first signs of a property market collapse.”

“The huge spike in market activity brought about by the pandemic property market boom over the last two years simply wasn’t sustainable,” Ferrando pointed out. “So, while the year ahead may look muted in comparison, we expect to see a far more settled property market stand strong despite the wider economic turmoil surrounding it.”