UK mortgage approvals slide to lowest level in two years

Mortgage approvals in Britain fell to their lowest level since June 2020 in April, as higher interest rates and a cost-of-living squeeze reduced people’s desire to buy a home with a mortgage.

Mortgage approvals slipped to 65,974 last month from 69,531 in March, the lowest level since the peak of the first wave of the pandemic, when 40,706 mortgages were originated, according to the data. Bank of England data released on Tuesday.

Martin Baker, chief economic adviser at the Ernst & Young Project Club, said the housing market had previously been relatively immune to rising interest rates and real income shocks, but the figures pointed to a slowdown in demand. He expects “housing market activity” to continue to cool in 2022, with “slower price growth”.

Royal Institution of Chartered Surveyors residential chairman Jeremy Leaf agreed, saying the “continuous monthly rise in the cost of living and interest rates” was damaging households’ confidence in taking on additional debt.

The decline in approvals contrasted with economists’ expectations for roughly flat levels, as the real rate on new mortgages rose 0.09 percentage points to 1.82% in April. Outstanding mortgage rates rose 1 basis point to 2.05%.

However, Leaf warns that the drop in approvals doesn’t necessarily mean a big price correction is on the horizon for the UK property market.

He said a “persistent housing shortage” meant “significant price changes” were unlikely.

Baker added that a “soft landing looks likely” because of “a high proportion of mortgages outstanding with fixed-rate maturities of two years or more” and the impact of higher rates will only be felt gradually.

While the lower approvals suggest the housing market may be cooling, consumer credit growth is healthy. The extra £1.4bn in additional borrowing by households was higher than the average monthly net new borrowing over the past 12 months and also higher than in March. Most new borrowings are made through credit cards.

Relatively healthy levels of borrowing during a period of low unemployment will keep the Bank of England under pressure to raise interest rates in the coming months.

Hina Bhudia, a partner at Knight Frank Finance, said the likely upward trajectory of interest rates had made “remortgage demand very strong”.

“Certain lenders allow you to book rates up to nine months in advance, so thousands of borrowers have come up with decisions that would normally be delayed,” Bhudia said.

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