The number of mortgages being approved to home buyers fell for the fifth month in a row in January, according to Bank of England figures.
Around 39,600 mortgages were approved for house purchase in January, down from 40,500 in December, marking the lowest monthly total since May 2020.
The Bank said that, if the onset of the Covid-19 pandemic and period immediately after were excluded from its figures, January’s total was the lowest for approvals since January 2009, when 32,400 were recorded.
The “effective” interest rate – the actual interest rate typically paid – on newly-drawn mortgages increased to 3.88% in January, according to the Bank’s Money and Credit report.
The latest Bank of England data shows that consumers are continuing to be resilient, but reluctant to take on large, new financial commitments— Karim Haji, KPMG
Households also borrowed an additional £1.6 billion in consumer credit in January, jumping from £786 million in December 2022.
Within the latest figure, £1.1 billion of borrowing was on credit cards and the remainder was through other forms of consumer credit, such as personal loans or overdrafts.
Karim Haji, a head of financial services at KPMG, said: “Some market indicators have shown a rebound in consumer confidence in recent weeks and there is growing expectation that the economy may have avoided a recession. But, that restored optimism will take time to feed through to consumer decision making.
“The latest Bank of England data shows that consumers are continuing to be resilient, but reluctant to take on large, new financial commitments as consumers still have high – if not rising – inflation and higher interest rates to contend with.
“That’s why banks must continue to put in place measures to support struggling borrowers and focus on commitments to responsible lending.”
The reality of increased costs has likely led many households to dip further into essential reserves— Paul Heywood, Equifax UK
Households deposited an additional £3.5 billion with banks and building societies in January, compared with £3.3 billion in December.
UK non-financial businesses made £3.5 billion of net repayments of bank and building society loans, including overdrafts, in January, following £3.7 billion of net borrowing in December.
Paul Heywood, chief data and analytics officer at Equifax UK, said: “Whilst the Bank’s interest rate increases may have boosted the attractiveness of savings, the reality of increased costs has likely led many households to dip further into essential reserves.
“These reserves may in turn be supplemented by high-cost short-term credit options to maintain a certain living standard, leading to a further squeeze on households already facing a real-terms pay cut due to inflation.”
