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First signs of a housing market slowdown as mortgage approvals plunge

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
31/10/2022

Mortgage approvals for house purchases dropped to 66,789 in September, down from 74,422 in August.

Data from the Bank of England’s Money and Credit statistics showed that despite the dip, this was in line with the six-month average of 67,152. Approval levels were also up on the 64,140 seen in July and the 63,456 seen in June. 

Remortgage approvals fell slightly in September to 49,122, a small change from 49,532 in August. Approval levels were also above the six-month average of 47,078. 

Gross mortgage lending rose from £25.9bn in August to £27bn in September, while gross repayments stayed flat at £20.6bn. The net borrowing of mortgage debt also stayed flat at £6.1bn, up on the six-month average of £5.7bn. 

Rates on the up 

The effective interest rate – the actual interest rate paid – on newly drawn mortgages increased by 29 basis points to 2.84% in September which was the largest rise since December 2021 when the base rate first started going up.  

The rate on the outstanding stock of mortgages went up by seven basis points to 2.24%. 

Mark Harris, chief executive of SPF Private Clients, said the rise in average rates was expected, but added: “Thankfully, the situation has eased for borrowers since the worst of the fallout from the mini Budget. Lenders have been returning with fixed rate mortgages pegged at more attractive levels as swap rate volatility has calmed a little.” 

Housing market slowdown 

Simon Webb, managing director of capital markets and finance at Livemore, said the figures suggested that “we could be starting to see the housing market slowing down as the cost of borrowing increases”.

He said: “Base rates will rise again when the Monetary Policy Committee meets on Thursday likely moving up to at least3%, a rate not seen since November 2008.” 

Richard Pike, Phoebus Software’s chief sales and marketing officer, said this was the first sign of the housing market 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,” he added. 

Pike said warnings of redundancies from estate agent chains last week would impact the number of properties coming to market and also indicated a changing confidence in the property sector.

He said: “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.” 

Sector turbulence 

Marc von Grundherr, director of Benham and Reeves, said decline in activity was “exaggerated” due to the mortgage sector’s response to the government’s mini Budget, which saw products taken off the shelves and rates hiked up. 

He added: “While we’ve now seen a degree of stability return to the market in this respect, it’s also important to note that we’re coming off the back of what is traditionally one of the busiest periods of the year for the UK property market.  

“Therefore, it’s only to be expected that the level of buyers entering the market will start to cool gradually as we approach the end of the year.”