The average interest rate on newly drawn mortgages fell for the first time in more than two years in December, in a sign that the peak impact of last year’s dramatic interest rate rises has passed.
However, the average rate on the total stock of mortgages kept rising, and remains below the rate for newly drawn home loans, as most homeowners remain on fixed deals agreed at lower rates.
The rate on newly drawn mortgages was 5.28%, down from the 5.34% interest rate on mortgages drawn in November.
The rate on all mortgages rose from 3.27% to 3.36%.
Ashley Webb, UK economist at Capital Economics, called the stats an “inflection point”.
Webb said: “December’s money and credit data suggests there are green shoots of a recovery in the housing market and perhaps the wider economy. While the drag from high interest rates will continue to feed through to existing borrowers, the further fall in rates for new mortgages in January will probably continue to increase new borrowing. This lends some support to our view that the economic recovery will start later this year.”
Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners,said: “For now, the better interest rate outlook is already feeding through to the market with new buyers able to secure significantly better mortgage deals than the hyper-expensive products on offer last summer. This was evident in the BoE’s data for December with interest rates on newly drawn mortgages falling in December by 6 basis points to 5.28% - the first drop since November 2021. Buyers can take further comfort from January’s heated mortgage price wars as lenders battled to attract new customers and retain existing clients.”
Net mortgage approvals continued to climb, rising back over the 50,000 mark to 50,500. It’s the third consecutive rise, but approval numbers are still nowhere near pre-pandemic levels.
However, Akhil Mair, Director at Mayfair-based broker, Our Mortgage Broker, said the official stats will likely show a further jump in approvals in January, given high levels of demand: "The surge in mortgage enquiries and subsequent applications since early December has been truly remarkable. There's been a dynamic blend of first-time buyers eagerly stepping onto the ladder and seasoned home movers seeking new horizons.
Ying Tan, boss of City-based broker Habito, expressed a similar sentiment: “December was steady and typical for that time of the year for Habito. January, however, has exploded into life as lenders have cut rates and jostled for position. Enquires are double what we had in December, and these are moving quickly to applications.”
The new figures come just two days before the Bank of England makes its latest decision on interest rates. The Bank is seen as all-but-certain to hold its base rate at 5.25%, but economists hope that it will “lay the groundwork” this week for interest rate cuts that will come later in the year.
