A tightening up of consumer credit by banks has seen mortgage approval rates nose-dive for five straight months.
Net approvals for house purchases in the United Kingdom, an indicator of future borrowing, decreased for a fifth month in a row to 39.6 thousand in January 2023, down from a revised 40.5 thousand in December and compared with market expectations of 38.0 thousand.
It was the lowest level of approvals since the early stage of the pandemic in May 2020 and the weakest figure since January 2009, with Covid-19 onset and immediate post-period excluded, as rising borrowing costs, stubbornly high inflation, and a looming economic recession hit housing demand. Meanwhile, approvals for remortgaging, which only capture remortgaging with a different lender, dropped to 25.4 thousand in January, the lowest level since July 2012.
The ‘effective’ interest rate, the actual interest rate paid, on newly drawn mortgages increased by 21 bps to 3.88 percent in January. The rate on the outstanding stock of mortgages increased by 4 bps, to 2.54 percent. It should be noted that this does not reflect the most recent increase in interest rates by the BoE.