Mortgage approvals fall to lowest level since Covid hit
The mortgage market chaos following Liz Truss's mini-Budget pushed down approvals for home loans to their lowest level in more than two years in October.
Mortgages approved by lenders slumped from 66,000 to 59,000 last month as banks rushed to withdraw products and interest rates jumped, Bank of England data revealed.
City economists warned that much worse is to come for the housing market as it slows under the weight of soaring mortgage rates and the cost of living crisis.
The interest rate on new mortgages jumped by 0.25 percentage points to 3.09pc in October while the value of mortgage borrowing decreased by almost £2bn to £4bn. It was the lowest monthly total for mortgage approvals since June 2020.
The figures cover the period immediately after Kwasi Kwarteng delivered the mini-Budget when lenders withdrew hundreds of mortgage products and rates were pushed up in response to expectations for aggressive Bank of England action. Calm has been restored to the mortgage market by the reversal of most of the mini-Budget, but homebuyers are still facing much higher interest costs.
Forecasters are expecting a sharp fall in house prices as demand is weakened by soaring mortgage costs following the Bank’s rapid interest rate rises.
Ashley Webb, UK economist at Capital Economics, predicted that homeowners are facing a 12pc peak-to-trough plunge in house prices as mortgage rates average 5pc in 2023.
He said: “With high inflation and further rate hikes, from 3.00pc now to 4.50pc, set to squeeze households’ finances further and reduce the demand for credit, we think housing market activity will fall sharply from here.”
Simon Gammon, managing partner at Knight Frank Finance, said the slowdown could be a “sign of things to come” for the housing market.
He said: “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.”
