Mortgage approvals snap back following mini budget chaos, but net lending at lowest since 2016
Mortgage approvals have improved for the first time since August, as the market begins to shake off the stress of the mini-budget, however experts have warned that the housing market will “remain price sensitive”.
According to the Bank of England’s Money and Credit report for February, net mortgage approvals for house purchases increased to 43,500 up from 39,600 in January – however still remained below pre-pandemic levels.
“Mortgage approvals for house purchase picked up in February but remain at two thirds of their pre-pandemic February average,” said Frances McDonald, director of residential research at Savills.
“This represents an improvement on January when numbers were 40 per cent down on January 2017-19 averages and suggests numbers are now improving from their post-mini-budget lows.”
Mortgage rates soared during the fall out of last September’s budget after then Chancellor Kwasi Kwarteng announced plans to make £45bn of unfunded tax cuts.
However the housing market has been slowly stabilising since most of the measures have been scrapped.
McDonald continued: “Though confidence has improved and mortgage rates have come down, the housing markets are likely to remain price sensitive and realism from both buyers and sellers will be needed when negotiating transactions.”
Moreover, the report showed that households are beginning to tap the bulge of savings they started accumulating over the course of the Covid-19 crisis in response to inflation eroding their incomes, the Bank’s figures also indicated today.
Brits saving more with NS&I
Brits injected £3.6bn into savings accounts in February, including deposits in the government backed National Savings and Investments schemes, a slight increase from January’s net inflow, but below the pre-pandemic trend of over £4bn.
The net increase in savings over the three months to February of £9.5bn was also below the previous three months.
Family budgets are being squeezed by wages trailing behind inflation, which jumped unexpectedly to 10.4 per cent last month, forcing them to trim monthly saving contributions to maintain spending.
Recent tremors in the banking system could incentivise Brits to continue setting cash aside each month to capitalise on higher interest rates. The Bank of England has hiked borrowing costs eleven times in a row 4.25 per cent.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Brits could be “disincentivised from spending their savings if, as we expect, banks raise deposit rates in order to ensure that depositors who have funds over the £85K guaranteed by the Financial Services Compensation Scheme do not withdraw their money.”
What next for mortgage borrowers?
Victor Trokoudes, CEO and founder of money app Plum said the report presented a “mixed picture” for consumer finances in February.
“The rise in net mortgage approvals for the first time in six months suggests some resilience in the housing market, although it’s still well below pre-pandemic levels. And the value of net mortgage lending was at the lowest level since April 2016, excluding the pandemic, showing the impact of rising interest rates.
“With over one million householders seeing their fixed-rate mortgages expiring this year, it’s no surprise to see the rise in remortgage approvals.
“Competition among lenders has increased, with the average rate on a 2-year fixed mortgage with 75 per cent loan to value (LTV) down from a peak in October 2022 of 5.99 per cent to 4.82 per cent. However, the fact remains that rates are far higher than a year ago, when the average rate for the same mortgage was just 1.78 per cent.
Trokoudes said recent banking instability would have an impact on lenders’ appetite for risk.
“If your mortgage is expiring, act now to assess your options. Some people are considering overpaying on their mortgage in an attempt to make the pain of increased payments less severe over time. This may also reduce their LTV which could mean a cheaper deal when you remortgage. But if you’re considering this option, make sure you’ve not got other higher interest debts to pay off and you don’t need to access this money in the short-term.
Reece Beddall, sales and marketing director at Bluestone Mortgages, said speculation the Bank of England was looking to increase rates further to curb inflation, would only mean a growing number of customers facing financial struggles over the months to come.
He added: “Whether customers are experiencing difficulty keeping up with mortgage repayments, or concerned about how to take their first or next steps onto the property ladder, early engagement with a lender or broker is vital. It is the responsibility of the industry to ensure that customers feel supported during times of uncertainty, and are provided with the necessary guidance and advice to take their homeownership journey forward.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘With mortgage approvals for house purchases picking up in February for the first time since August, this is encouraging news and suggests buyers are more inclined to plan ahead and make their move.
’It is perhaps surprising when you consider that the average rate on new mortgages continuing to rise significantly, increasing by 36 basis points to 4.24 per cent in February. As borrowers will be all too aware, this comes on the back of significant increases in the average rate paid over the previous five months.
’However, since then, a number of the bigger lenders have reduced their fixed-rate mortgages. We are not necessarily out of the woods just yet as Swap rates, upon which fixed-rate pricing is based, are proving to be pretty volatile. Borrowers would be wise to seek advice before holding off or jumping in with both feet.’
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: ’”hese figures are timely. Although net lending was down, the first rise in mortgage approvals in six months gives a clear indication of where the market is heading, particularly after it took such a hammering in the final quarter of 2022 from rising interest rates and inflation.
“Demand is slowly rebuilding now mortgage rates are starting to stabilise and more products are available as we enter the crucial spring period. This will help set the tone for the remainder of the year.”