Mortgage approvals fall 11% as lenders hit by borrowing dip

Approvals for house purchases, an indicator of future borrowing, fell from 66,000 in September to 59,000 in October.

Net borrowing of mortgage debt by individuals also decreased in October, from £5.9bn to £4.0bn according to the Bank of England’s latest money and credit report published today (November 29).

This week, adviser at firm Ash-Ridge, Jane King, said a handful of lenders had told her “that purchase applications are almost non-existent so they need to start getting competitive again”.

The balance of power has shifted very clearly to buyers now.Natalie Hines, Premier One Mortgages

Lenders have continued to cut their rates after they peaked in October following former prime minister Liz Truss’ "mini" Budget.

The volatility which ensued caused lenders to hike their rates.

The average rate paid on new mortgages rose by 25 basis points in October, with the average two-year fixed rate peaking at 6.5 per cent - the highest it has been since August 2008 - according to Moneyfacts.

But this month, rates have been falling with some high street lenders making cuts of over 1 per cent to some of their mortgage deals.

Last week, the average five-year fixed rate fell below 6 per cent for the first time in seven weeks.

“Mortgage applications have definitely been slower but we are still seeing first-time buyers making offers as, for them, falling prices are an opportunity to get onto the property ladder,” said Natalie Hines, founder at Birmingham-based Premier One Mortgages.

“The balance of power has shifted very clearly to buyers now. Requests to borrow extra money for debit consolidation have also increased, and I encourage all my clients to do a simple income and expenditure exercise to see what's coming in and what's going out so we can get a good idea about what disposable income they have every month.”

Founder of Teesside-based Riverside Mortgages, Lewis Shaw, said he saw a handful of new business cases in October, which came to “significantly below average” business volumes. 

Matthew Jackson, director of Salisbury-based mortgage broker Mint FS, said new purchase enquiries, whether from first-time buyers or home movers, “have fallen noticeably over the past couple of months”.

We are seeing property investors much more cautious and in some cases shocked at how high rates currently are.Marcus Wright, Bolton Business Finance

Shaw’s business was, however, bolstered by more remortgage enquiries as borrowers look to free up disposable income and clear their balance sheets. 

“I suspect remortgage activity will be significant, with even more people looking to pay off unsecured debt and batten down the hatches as we navigate the recession we're now in,” he said.

Approvals for remortgaging - which only capture remortgaging with a different lender - increased slightly in October, to 51,300 from 49,500 in September, according to the Bank of England.

Jackson reckons as interest rates begin to stabilise, more buyers will “stick their heads above the parapet and look for bargains”. 

For second charges, or secured loans, he has seen enquiries double since September.

'Mini' Budget chaos or Christmas slowdown?

Scott Taylor-Barr, a Shropshire-based adviser at Carl Summers Financial Services, said the number of purchase enquiries has certainly fallen, but that it is hard to tell whether this is a natural drop the market would expect as it approaches December or whether this is an actual decline in house buying.

Jackson also said it was unclear what percentage of this drop was the natural fall as the UK heads towards Christmas and what is the lasting effect of the "mini" Budget.

One group that has been affected more than most is property investors.

Managing director at Bolton Business Finance, Marcus Wright, said he was expecting to see another fall in mortgage approvals as the impact of the base rate starts to show. 

He continued: “We are seeing property investors much more cautious and in some cases shocked at how high rates currently are. 

“Higher rates potentially mean that affordability checks and stress tests are harder to pass.”

ruby.hinchliffe@ft.com