Mortgage approvals dropped to the lowest level in more than two years in November, as high inflation and increased borrowing costs put a strain on household spending.
The latest figures from the Bank of England revealed that approvals for residential property dropped to 46,100 in November, down from 57,900 the previous month, to the lowest level since June 2020, when the Covid-19 pandemic brought the housing market to halt.
Many homebuyers were deterred by a surge in mortgage rates sparked by the mini-budget turmoil in late September, which prompted some lenders to withdraw home loans.
Mortgages had already been getting more expensive before the disastrous financial statement announced by previous chancellor Kwasi Kwarteng due to interest rate hikes introduced by the Bank of England.
Andrew Wishart, senior property economist at Capital Economics, said that housing market activity will remain low in the near term.
“A further decline in mortgage rates and a significant correction in house prices will be necessary before mortgage lending and activity can recover,” he said.
The fall in mortgage approvals was “another indicator of slowing demand for UK housing as the rising interest rate environment bites”, said Daniel Mahoney, economist at Handelsbanken.
Jeremy Leaf, north London estate agent, commented: “Mortgage approvals are always a good indicator of future direction of travel for the housing market. On the ground over the past few months, we have been seeing buyers trying to take advantage of mortgages arranged at lower rates, while others try to come to terms with higher repayments, as evidenced in this survey.
“However, we have noticed many holding back until the early new year to check if mortgage rates really are stabilising before deciding to move. The equity-driven are certainly faring better than more-heavily mortgaged first-time buyers, who are also being squeezed by higher rents.”
Tom Bill, head of UK residential research at Knight Frank, believes that in a similar way to the steep monthly price declines seen after the mini-Budget, November’s abrupt drop in mortgage approvals does not tell us a great deal about how the UK housing market will perform in 2023.
He said: “Mortgage rates spiked after the mini-Budget, which many buyers and sellers took as a signal to hold off until after Christmas. 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 downward trajectory will be more gentle than anything seen in the chaotic final quarter of 2022.”