By This morning (29 November 2022), the Bank of England released its mortgage approval data showing that mortgage approvals for house purchases decreased to 59,000 in October from 66,000 in September and the ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by 25 basis points, to 3.09% in October.
Simon Gammon, Managing Partner, Knight Frank Finance, comments:
“Average mortgage rates surged during October amid the chaotic days following the mini budget.
It wasn’t until very recently that lenders began dropping rates following the Bank of England’s intervention and subsequent scrapping of the government’s most controversial proposals.
Those rate cuts will come through in November’s data, but we probably won’t see much further easing until the new year.
The positive news is things have settled down, but the market still feels very finely balanced.
Should the Federal Reserve turn dovish this week and should the Bank of England follow, that could well set the stage for further rate cuts. For the time being, tracker products still look cheaper relative to fixed rate products, but the gap has been narrowing.
For borrowers that need to make a decision quickly, if it is right for your personal circumstances, it’s worth considering moving to a variable rate until the outlook becomes clearer.
Lending data, also released by the Bank of England today, showed activity slowing markedly.
Monthly mortgage approvals for the purchase of homes are running below long run averages, which may be a sign of things to come.
The mini-budget weighed heavily on sentiment and it’s now clear many buyers have opted to postpone acting at least until the other side of Christmas, but we’d expect activity to be subdued until 2023 while borrowers digest what is a “new normal” for interest rates.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, comments:
“These comprehensive figures, though reflecting buying decisions made over the previous few months or so, always provide an indication of future direction of travel for housing activity.
On the one hand, we are starting to appreciate the size of the missile which hit the market soon after the mini-Budget.
But also, lack of a sharper fall demonstrates the determination of many to continue with their agreed sales despite the rising cost of living and mortgages in particular, which we have certainly witnessed in our offices.”
Tom Bill, head of UK residential research at Knight Frank, comments:
“The number of mortgages issued in the month following the mini-Budget was the lowest since the early days of the pandemic, which is not a huge surprise.
We don’t believe October was a cliff-edge moment for the UK housing market though.
Swap rates have returned to where they were in mid-September, which will filter through to lower mortgage costs even as the Bank of England raises the base rate.
However, as a new lending landscape emerges after 13 years of ultra-low rates, we believe prices will fall by around 10% over the next two years.
There will be more downwards pressure on prices after Christmas as cheaper mortgage offers made before the mini-Budget work their way through the system.”
Tomer Aboody, director of property lender MT Finance, comments:
“It’s not surprising to see property purchase levels decreasing as costs for consumers are increasing.
Energy prices, inflation and mortgage rates are bound to have an impact on sentiment and people’s pockets.
A surge of remortgages also shows homeowners taking advantage of agreed or offered mortgages which they have had from lenders, at lower levels, making sure they’re tying themselves into lower rates or at least taking variable products which seem relatively cheap in comparison to new fixed products.
While the market has taken a hit and will slow further, there will still be buyers out there and hopefully the government can offer further assistance like some of their European counterparts have done.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, comments:
“Net borrowing decreased in October compared with September, while mortgage approvals for house purchases also dipped and were below the six-month average.
As expected, the average rate paid on new mortgages rose significantly, increasing by 25 basis points to 3.09 per cent in October.
As borrowers will be all too aware, this came on the back of a significant increase in the average rate paid in September.
Thankfully, the situation has eased for borrowers since the worst of the fallout from the mini-Budget.
Lenders have been returning with more attractive fixed-rate mortgages as Swap rates have settled, albeit at a higher level than in the recent past.
With more interest rate rises likely in the short term, borrowers concerned about their mortgage should seek advice from a broker to find out what options are available.”
CEO of Octane Capital, Jonathan Samuels, comments:
“The latest mortgage approval figures are an expected consequence of the many challenges facing the market right now.
Indeed, a reduction in buyer appetite comes as no surprise in the context of a worsening cost of living crisis, runaway inflation, and continued economic uncertainty.
For now at least.
However, despite the doom and gloom, the figures may defy the harshest critics as they have not dropped off a cliff as such.
Compared to historic levels for this time of year they are down 12% when compared with previous levels seen in the same month in 2017, 2018 and 2019.”
Director of Benham and Reeves, Marc von Grundherr, comments:
“Although today’s mortgage figures will bring no cause for celebration, they are certainly no cause for alarm either, and the decline seen is almost certainly a consequence of a disastrous mini-budget which still lingers in the air while the market seeks to navigate multiple challenges.
But we must factor in seasonality too whereby mortgage applications always begin to reduce at the onset of winter.
As fixed rate mortgage costs continue to fall in Q1, expect to see a restoration of buyer demand.”
Managing Director of Barrows and Forrester, James Forrester, commented:
“The decline in approvals and monies actually lent is the latest dent to property market sentiment and is almost certainly down to a government that will be heavily featured on Santa’s naughty list this year.
However, we also need to remember that the decline towards pre-pandemic normality is expected and in part due to the influence of a seasonal market slow down. Armageddon this is not.”
CEO of Alliance Fund, Iain Crawford, comments:
“The property market ebbs and flows and is well known to be cyclical.
Yes, we’ve seen turmoil in the interest rate markets since the flawed Kwasi Kwatreng Budget and the effect on money costs is feeding through to buyer sentiment for sure.
But wait. Property owners have enjoyed rather a sweet time of late and even if there is an adjustment of 5% to 10% in prices, those owners are still well ahead of the game on accrued value.
2023 will be a leaner property market, that is undisputed.
But talk of price crashes and meltdowns are wide of the mark given that medium term mortgage rates are already dropping significantly.”
Tasha Chouhan, UK & IE Banking and Lending Director at Tink, comments:
“New data released today from the Bank of England (BoE) has revealed that mortgage approval rates have fallen again.
But while the mortgage sector may be starting to stabilise after the turmoil following September’s mini-budget, consumers are continuing to grapple with ever more challenging economic conditions as mortgage rates and energy bills remain stubbornly sky high.
In this climate, it is critical that lenders prioritise consumers’ financial needs and do all they can to support and protect them.
For this to happen, traditional lending processes need a radical overhaul.
Tink’s research finds that 50% of lenders are still using outdated and limited credit scoring models which don’t consider transaction data from consumers’ bank accounts – potentially excluding millions of people who can afford credit.
This is unacceptable in the current economic climate and the sooner this is recognised and resolved, the better the outcome will be for both lenders and consumers.
With the UK staring down the barrel of the longest recession since records began, we need to move away from outdated models to unlock fairer and more inclusive affordability checks that support consumers and businesses in the months ahead.
This is where open banking can help – providing lenders with a 360-degree view of people’s finances to ensure anyone that is entitled to credit, a loan or a mortgage, is able to secure one.
In the same vein, it also allows lenders to protect themselves against risk through more accurate credit assessments, as well as providing visibility of those who are vulnerable and need support.”
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