Mortgage approvals fall to lowest level since first lockdown

Figures released today (January 4) by the Bank of England showed there were just 46,100 approvals for house purchases in November, down from 57,900 in October.

Viewed as an indication of future borrowing, mortgage advisers say the slump is “worrying” and shows the impact of base rate rises and the increase in the cost of living. 

Approvals for remortgaging, which only capture remortgaging with a different lender, were also down with 32,5000 taking place in November.

This was a drop from 51,300 in October and is below the previous six month average of 48,100.

Overall, net borrowing of mortgage debt by individuals increased from £3.6bn to £4.4bn in November, while gross lending fell from £27.7bn in October to £25.7bn in November.

Gross repayments also dropped from £25.8bn to £21.6bn.

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

Commenting on the data, AJ Bell’s head of personal finance, Laura Suter said the drop shows that the combined spike in mortgage rates and warnings about house price falls “have clearly put the jitters into homebuyers”. 

The ‘effect’ interest rate, which is the actual interest paid, on newly drawn mortgages increased by 26 basis points in November to 3.25 per cent. 

This was on the back of two turbulent months in the mortgage market when rates began to rise sharply following September’s “mini” Budget.

On the back of this market upset, some in the property industry pointed out that this data from November does not provide much information on where the market is set to go in 2023.

Knight Frank’s head of UK residential research, Tom Bill said: “Rates are edging back down but are still several percentage points higher than they were this time last year. 

“Price declines will become more widespread and sales volumes will come under pressure later this year as more buyers recalculate their financial position but the downwards trajectory will be more gentle than anything seen in the chaotic final quarter of 2022.”

Despite the drop in activity in November, mortgage brokers reported that first-time buyers remain engaged with the market.

Harmony Financial Services director, Imran Hussain said enquiries from home movers “disintegrated” after September’s “mini” Budget but added “there are still lots of enquiries for remortgages, and first-time buyers are still active as rents have gone through the roof".

Likewise, Premier One Mortgages founder, Natalie Hines said she is still seeing first-time buyers making offers despite a slowdown in November and December.

“For them, falling prices are an opportunity to get onto the property ladder. The balance of power has shifted very clearly to buyers now,” Hines said.

A divided nation

Today’s data from the Bank of England also showed an increase in consumer borrowing in November. 

An additional £1.5bn in consumer credit was borrowed in November compared to October when the net figure borrowed was £0.7bn. This was driven by an additional £1.2bn of credit card borrowing, according to the Bank of England.

AJ Bell’s Suter noted: “These figures will inevitably climb again once December’s numbers are revealed, as a large chunk of the cost of Christmas is put on plastic.”

“On top of that, we saw a big leap in personal loan costs, with the average rate rising to a five-year high, increasing to almost 8 per cent."

“It means those who are pushed into borrowing are being hit with higher costs, which will mean more face a debt spiral as they struggle to keep up with repayments,” Suter said.

Hines noted that she has also seen an increase in clients requesting to borrow extra money for debt consolidation.

Elsewhere, the data also showed that many people continued to save money during November. 

Suter described this as “the current divide in the nation”.

Total savings dropped slightly in November, but despite the cost of living pressures saving levels remain dramatically higher than pre-pandemic with £5.7bn deposited in banks and building societies in November.

jane.matthews@ft.com