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Mortgage approvals "decreased significantly" in September: BoE

Bank of England BoE

“Flat mortgage borrowing in September is clear a reflection of the cooling property market as rampant inflation and rising borrowing rates impact affordability”

Mortgage approvals for house purchases “decreased significantly” in September, to 66,800 from 74,400 in August, according to the latest Money and Credit statistics from the Bank of England.

However, purchase approvals remain above the past six-month average of 67,200.

Approvals for remortgaging with a different lender also decreased in September, to 49,100 from 49,500 in August, but were also higher than the past six-month average of 47,100.

The data shows that net borrowing of mortgage debt remained at £6.1 billion in September. Gross lending increased to £27.0 billion from £25.9 billion in August, while gross repayments were little changed at £20.6 billion in September.

Jeremy Leaf, north London estate agent and former RICS residential chairman, commented: “These figures are already starting to reflect house buying intentions before the mini Budget of 23 September. On the ground, the situation deteriorated further in the weeks following when uncertainty over mortgage payments came on top of worries about the increasing cost of living.

“Fortunately, most of those approvals are resulting in sales as buyers wish to take advantage of rates already secured which are unlikely to be repeated for some time. Mortgage rates are starting to come down too which has helped restore some of the lost demand albeit rather slowly but most sales are continuing, not collapsing.”

Alice Haine, personal finance analyst at Bestinvest, said: “Flat mortgage borrowing in September is clear a reflection of the cooling property market as rampant inflation and borrowing rates impact affordability – with some buyers downgrading the size, location or value of the home they purchase to ensure they can still meet rising monthly payments.

“The sharp decline in mortgage approvals also highlights the market mayhem seen last month as buyers scrambled to lock in new deals in the face of rapidly rising borrowing rates and a troubling political environment.

“The panic in the market in the first three weeks of September might have been driven by rising interest rate expectations – with the Bank of England increasing the base rate by 50 basis points on September 22 to 2.25% – but the situation escalated dramatically when forming Chancellor Kwasi Kwarteng unveiled his radical fiscal plan of unfunded tax cuts a day later.

“The ‘mini budget’ spooked the financial markets, raising fears of base rates as high as 6% with lenders pulling almost 2,000 mortgage products and even reneging on existing provisional offers as they frantically reassessed borrowing conditions. Mortgage rates jumped as high as 6.65% for an average two-year fixed product – from a level of 4.74% on the morning of Kwarteng’s fiscal statement.

“While the situation may have eased slightly since Rishi Sunak became Prime Minister following Liz Truss’s short tenure as leader with the average two-year fix dipping to around 6.5%, this is still almost triple the level it was 12 months ago.

“It means the mortgage pain is far from over for buyers who face another base rate rise this week leaving those with fixed mortgage products expiring this year or next facing a very challenging mortgage landscape to the one they left.

“With inflation still at a 40-year high of 10.1% – and expected to peak above 11% – and both Sunak and new Chancellor Jeremy Hunt warning that fiscal tightening is on its way, a long and deep recession in on the cards causing even further financial misery for workers who may have to contend with job loss in addition to higher living costs.”

Richard Pike, chief sales and marketing officer at Phoebus Software, added: “This is the first sign that housing is being affected by the current economic situation. The double hit of rising inflation and increasing interest rates is enough to give pause and, when finances are stretched, moving house falls down the priority list.

“We saw warnings of redundancies from estate agent chains last week, which reflects the ebb in confidence and restricts the number of properties coming to market. We are heading into a traditionally quieter time of the year, but there is still work to be done for brokers and lenders. This is an opportunity to look at affordability and assess where vulnerabilities lie. A proactive approach now is vital to ensure that the most vulnerable borrowers know their options and are managed through any difficulties in the coming months.”