Mortgage approvals fell for a fourth consecutive month in December 2022, reaching the lowest level seen since May 2020, during the first lockdown.
Statistics released today (January 31) from the Bank of England showed that mortgage approvals dropped to 35,600 in December, from 46,200 the month before.
Net borrowing fell from £4.3bn to £3.2bn in the final month of 2022, with mortgage brokers saying the decrease was unsurprising given the continued impact from the “mini” Budget and the usual seasonal lull.
“December was probably the slowest month I have seen in 10 years and this data highlights that,” broker and director of Verve Financial, Gary Boakes said.
However, Boakes and other brokers have said the market has improved since December’s lull.
“Nobody was interested in doing anything and people were simply waiting to see if rates continued to fall in January. Two year fixed rates are now hot again and the appeal of tracker products is disappearing quickly.
“Despite the chaos caused by Liz Truss's 'mini' Budget, we have since had months of positive news of rates reducing, which has culminated in a busy January,” Boakes said.
Today’s BoE figures also showed that the ‘effective’ interest rate - the actual interest rate paid - on newly drawn mortgages increased by 32 basis points to 3.67 per cent in December.
R3 Mortgages director, Riz Malik said he was surprised lenders were not quicker to reduce rates in January.
Earlier this month, a handful of high street lenders signalled cuts to their fixed rates with some brokers having said 10-year fixes are likely to fall below 4 per cent very soon, with five and two-year fixed rates likely to follow suit by the summer.
However, while some buyers will be waiting for rates to drop they are also holding out for the predicted fall in house prices.
“Confidence in the market is down and the low number of mortgage approvals in December confirms this,” mortgage adviser Samuel Mather-Holgate said.
“Look on Rightmove and you’ll see property listings drying up. Only those that are overvalued remain.
"Although the listing prices are more realistic than asking prices last month, there is a long way to go before buyers are tempted as we know more rate rises are coming and there's a plethora of bad economic news further down the line,” he added.
Elsewhere, the BoE figures also revealed that consumer borrowing continued to rise in December with the annual growth rate of credit card borrowing increasing from 12.2 per cent in November to 12.4 per cent in December.
The annual growth rate of other forms of consumer credit increased from 4.8 per cent in November to 5 per cent in December, with consumers borrowing an additional £0.5bn in the month.
This was lower than the previous six-month average of £1.2bn.
Quilter mortgage expert, Karen Noye said: "Outside of the housing market, the cost-of-living crisis has been taking a real toll and borrowing has been serving as a crutch for those struggling financially in recent months.
“While the dip in consumer credit is a positive given rising interest rates, should borrowing rise in the coming months and more people start to rely on credit cards to help make ends meet, it could spell for disaster.
"The effective rate on interest bearing credit cards rose to 19.55 per cent in December, up from 19.24 per cent in November, meaning borrowers could rapidly find themselves spiralling into debt if they are unable to pay it off.”
Boom year for equity release
Elsewhere, the equity release market set new records in 2022 according to figures released today (January 31) by the Equity Release Council.
Lending reached £6.2bn in the year, 29 per cent more than 2021.
However, the year ended on a cautious note for the market with December being the quietest year for the sector since before the Covid-19 pandemic.
Commenting on the figures, Will Hale, chief executive of later life lender Key said despite the record year, there is “no doubt” that borrowers and advisers have become more cautious.
“And rightly so in this higher interest rate environment,” he added.
“Increased product flexibility and choice has seen the market double in size since 2017 as more people look to improve their retirement finances with the support of housing equity."
David Stevens, director of savings and retirement at LV said it is not surprising that customer demand for equity release products has begun to dampen given the recent financial turbulence and significant increases in interest rates.
“[It] is a trend that we think is likely to continue into 2023 as the market adjusts,” Stevens added.
However he noted that LV’s research over the past number of years has shown that equity release is becoming an “increasingly fundamental and mainstream solution” for UK consumers to consider in order to help finance their later lifestyles.
jane.matthews@ft.com
