Mortgage approvals bounce back but home loan rates rise

Mortgage approvals bounced back in March, but home buyers are borrowing less at higher home loan rates, according to Bank of England.

The latest Bank of England data has showed the number of mortgage approvals for home purchase rose from 44,126 in February to 52,011 in March.
The figure is up 17.8% but still below the monthly average for 2022 of 62,700.

Borrowing of mortgage debt by individuals also fell further from a net flow of £0.7 billion in February to net zero in March. 

This was the lowest level since July 2021.

If the period since the onset of the Covid-19 pandemic is excluded, net borrowing of mortgage debt was at the lowest level since June 2011, the Bank of England said.
Gross lending increased slightly from £20.4bn in February to £20.6 billion in March, while gross repayments fell from £19.9bn to £19.3bn.

Typical interest rates on newly drawn mortgages also increased during the month by 17 basis points from 4.24% to 4.41%.

Commenting on the figures, Lucian Cook, head of residential research at Savills, said:

“The bounce in mortgage approvals reflects an increasingly stable and competitive mortgage market.

“The ability to better plan their prospective mortgage outgoings has brought buyers back to a housing market that has proved more resilient than we feared would be the case six months ago. 

“Savills latest research of buyers and sellers reveals that commitment to move has improved significantly in both in the short and long term. 

“This said, ongoing inflationary pressures and the prospect of further rate rises mean cash and equity rich buyers are likely to remain in pole position over the remainder of the next six months.”

Charlotte Nixon, mortgage expert at Quilter, said the statistics paint a mixed picture for the housing market, with approvals up but the value of lending down.

Charlotte Nixon said:

“This decline will be down to persistently high inflation, the elevated cost of living, and rising interest rates, which have placed considerable strain on household budgets.

“However, net mortgage approvals for house purchases have shown resilience in the face of these issues.

“This increase could be linked to a modest rise in consumer confidence, as individuals grow accustomed to mortgage rates around 4.5% and a predicted path to a base rate peak of 5%.

“This is also likely a result of the usual uptick in house purchases in spring.

“However, with a base rate hike likely on the cards next week this new found optimism for buyers might be quickly dampened.

“Whether these increases are enough to completely rain on a usually more buoyant market in the spring and summer months is yet to be seen.”

It comes as analysis by Rightmove suggests first-time buyers are now paying £200 more per month on their mortgage than in 2022 due to a new record average asking price and higher mortgage rates.

First-time buyers with a 15% deposit are now paying £1,056 per month compared with £865 last year, the portal said.

This is still lower than the £1,218 per month that a new first-time buyer would have paid on average at the peak of rates in October, a comparable saving of almost £200 per month.

The analysis is based on the average asking price for a typical first-time buyer type property of two-bedrooms or fewer at £224,963 and the average rate for a five-year fixed 85% Loan-To-Value mortgage spread over 25 years at 4.44%.

Rightmove said the signs are that determined first-time buyers are still doing all they can to get onto the ladder despite economic challenges.

Buyer demand in the first-time buyer sector is currently 11% higher than the last more normal market of 2019 and is holding up most strongly against pre-pandemic levels.

Rightmove’s mortgage expert Matt Smith said:

“The combination of a new record price and higher mortgage rates than last year means it is challenge for first-time buyers. 

“Our data indicates that first-time buyers who are able to raise their deposit are still finding buying compelling, with the number of people looking to move in this sector currently higher than the last more normal market of 2019. 

“It was understandable that some buyers took a step back in the immediate aftermath of the mini-budget, particularly first-time buyers, as mortgage rates rapidly rose.

“Those looking to buy now may find that the average monthly mortgage payment on the home they are looking to buy is significantly less than they may have paid at the peak of rates in October.

“Now that rates are settling, would-be buyers planning a move may need to assess their individual circumstances and weigh up their affordability based on current rates, with the potential cost of waiting or paying rent for longer.”

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