The number of mortgages being approved for home-buyers fell significantly in September against a backdrop of rising borrowing costs. The Bank of England said mortgage approvals for house purchases decreased from 74,400 in August to 66,800 in September.
A large chunk of mortgage products disappeared from the market when former chancellor Kwasi Kwarteng unveiled his mini-budget on September 23, with lenders raising the prices of their home loans. Rises in the Bank of England base rate have also pushed up mortgage rates.
Alice Haine, personal finance analyst at investment platform Bestinvest, said: “The panic in the market in the first three weeks of September might have been driven by rising interest rate expectations – with the Bank of England increasing the base rate by 50 basis points on September 22 to 2.25% – but the situation escalated dramatically when former chancellor Kwasi Kwarteng unveiled his radical fiscal plan of unfunded tax cuts a day later.
“The mini-budget spooked the financial markets.” Many of the announcements made in the mini-budget have since been reversed.
Ms Haine said the "mortgage pain is far from over” and that many people with deals expiring soon will have difficult decisions to make. The “effective” interest rate – the actual interest rate paid – on newly drawn mortgages increased to 2.84% in September, according to the Bank of England.
Karen Noye, a mortgage expert at Quilter, said: "Later this week, the Bank of England will likely once again ratchet interest rates up to try and tame inflation." She added that increasing mortgage rates and energy bills could "make some homes simply unaffordable for people to stay in this winter".
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “With another interest rate rise likely this week, borrowers concerned about their mortgage should seek advice from a broker to find out what options are available.”
Approvals for re-mortgaging, which only capture re-mortgaging with a different lender, also decreased slightly in September, to 49,100 from 49,500 in August. Households also collectively deposited an additional £8.1 billion with banks and building societies in September, compared with £3.2 billion in August.
This was the biggest increase in household deposits since June 2021, when the figure was £9.9 billion. Savings rates have been rising in recent months amid increases in the Bank of England base rate.
Gabriella Dickens, a senior UK economist at Pantheon Macroeconomics, said: “Looking ahead, we think households will remain wary, given that consumers’ confidence still is on the floor. Note too that households likely will become even more cautious when unemployment starts to rise in the coming months as businesses seek savings in response to the surge in their borrowing costs."
