UK Mortgage Approvals Plummet as High-Interest Rates Impact Lending
The latest data from the Bank of England paints a concerning picture for the UK housing market, as mortgage approvals hit their lowest level since January. With British lenders approving only 43,328 mortgages in September, concerns are mounting over the health of the real estate sector. This decline in mortgage approvals reflects the impact of persistently high interest rates on borrowing and lending.
Decline in Mortgage Approvals: In September, mortgage approvals in the UK dropped to 43,328, the lowest figure since the beginning of the year. This marks the third consecutive month of decline, with August receiving 45,400 approvals. The data also reveals a significant reduction in net licenses for remortgaging, which fell to 20,600, reaching levels not seen since January 1999.
Impact on Borrowing: The effects of these declining mortgage approvals are reflected in net borrowing figures, which fell to just under £1.4 billion in September, down from £1.7 billion in August. This demonstrates that consumers are becoming more cautious and borrowing less amid economic uncertainties.
The Role of High-Interest Rates: The Bank of England has played a crucial role in these developments by raising interest rates for the 14th consecutive time on August 3. This brought the benchmark rate, influencing most mortgage lending rates, to a 15-year high of 5.25%. The rapid increase in interest rates from an all-time low of 0.1% in November 2021 has resulted in higher mortgage costs, as the central bank aimed to combat high inflation. While the Bank of England kept rates steady in September, it is widely anticipated to do so in its upcoming decision.
Market Sentiment and Affordability: The challenging mortgage approval figures have not come as a surprise to industry experts. Gary Bush, a financial adviser at MortgageShop.com, highlights that the sentiment surrounding the mortgage and property market could be more robust now. The declining remortgage numbers underscore that many individuals have no alternative but to stick with their current lenders due to affordability constraints.
Impact on Home Sales: These trends in mortgage approvals and borrowing are also affecting the broader real estate market. A recent report by real estate firm Zoopla indicates that home sales in the UK are on track to reach their lowest level in over a decade. This is primarily attributed to the rising costs of mortgages, which have made it more challenging for prospective buyers to enter the market.
Conclusion: The UK housing market is facing headwinds as persistently high interest rates are impacting mortgage approvals and borrowing. This environment has led to a cautious sentiment among consumers and is expected to result in a notable decrease in home sales. As the Bank of England is anticipated to maintain interest rates, it remains to be seen how the real estate market will adapt to these challenging conditions in the months ahead.