March marked a significant turning point for the UK housing market as mortgage approvals surged to their highest level in 18 months. This recent data from the Bank of England highlights a resilient property market that continues to recover robustly, despite escalating mortgage rates and economic uncertainties.
In a detailed announcement on Tuesday, the Bank of England reported that net mortgage approvals in March rose to 61,300, up from 60,500 in February. This figure, while slightly below the economist predictions of 61,500 from a Reuters poll, represents the highest level since September 2022 and underscores a trend of steady growth, marking it as the sixth consecutive monthly increase.
This positive shift comes after a troubling dip to a low of 39,800 approvals in January 2023, a consequence of spiking interest rates that dampened demand significantly. The numbers from March indicate that mortgage approvals are returning closer to their monthly average during the more stable period of 2016 to 2019, which hovered around 66,000.
Mortgage Rate Dynamics
The increase in approvals has unfolded against a backdrop of rising home loan costs. Swap rates, crucial in determining mortgage pricing, have climbed as market expectations adjust in anticipation of interest rate cuts by the Bank of England from a 16-year peak of 5.25%. This adjustment follows less-than-ideal inflation data, influencing the rates at which mortgages are offered.
Despite these increases, March saw a slight reprieve in average mortgage costs. The average quoted rate for a two-year mortgage at 60% loan to value edged up to 4.81% from 4.62% in February but remained significantly lower than the July 2023 peak of 6.22%. Notably, several major lenders, including NatWest and HSBC, have already hiked rates on a variety of mortgage products, with similar actions echoed by TSB, Nationwide, and Santander.
Broker Insights and Borrower Costs
According to Aaron Strutt, a director at broker Trinity Financial, the recent rate increases are moderate but sufficient to noticeably affect monthly repayments. “For the moment, the cheapest rates are just under 4.4%, which is not bad but higher than many borrowers are prepared to pay,” he remarked.
Furthermore, the Bank of England noted that the “effective” interest rate, which represents the actual rate paid and typically lags behind quoted rates, fell by 0.17 percentage points to 4.73% in March—the lowest since the previous July.
Money Supply and Credit Borrowing
Adding to the financial news, the Bank of England’s report also shed light on broader economic indicators. The money supply, known as M4ex, which includes physical cash and all sterling deposits held by the private sector with UK banks, jumped by £12.1 billion in March, marking the highest increase since October 2022.
Credit borrowing saw an uptick as well, rising to £1.6 billion in March from £1.4 billion in February. Meanwhile, businesses secured £10.2 billion of finance, recording the most significant net finance raised since May 2020.
Economic Outlook
Ashley Webb, an economist at Capital Economics, interpreted these figures optimistically, suggesting that the effects of high interest rates are beginning to wane. “The central bank’s data provided further evidence that the drag from high interest rates is starting to fade and supports our view that the economy rebounded in Q1 after entering a technical recession at the end of 2023,” he concluded.