In September, British lenders approved only 43,328 mortgages. This might sound like a big number, but it’s the lowest we’ve seen since January. This is an indication of how the property market is reacting to increasing borrowing costs.
Interestingly, economists who were polled by Reuters had anticipated that there would be 45,000 loans approved for home purchases. The actual figure fell short of this prediction, suggesting that the market might be cooler than experts had thought.
Remortgaging and Mortgage Debt Repayment
It’s not just new mortgages that are seeing a decline. Remortgaging, which refers to replacing your existing mortgage with a new one (often to get a better deal), has also taken a hit. The figures dropped to approximately 20,600 – the lowest since way back in January 1999.
Additionally, there was a net repayment of a staggering £940 million (or $1.14 billion) in mortgage debt in September. This is the smallest amount of net mortgage borrowing we’ve seen since April of the current year.
The Interest Rate Factor
Why are we seeing these shifts? A significant influencing factor has been the Bank of England’s (BoE) decision to increase interest rates. Between December 2021 and August of the present year, the BoE hiked interest rates from a mere 0.1% to a whopping 5.25%. Their aim was to tackle the high inflation rates the country has been facing.
In September, the BoE decided to hold these rates steady, and it looks like they’ll maintain this stance for a while. The ripple effect of these changes has been an increased cost for mortgages, which naturally affects people’s decision to buy property or even refinance their existing loans.
Economic Concerns and Predictions
Such drastic changes in the lending landscape have led some economists, including those from reputable firms, to express their concerns. They fear that the inflated borrowing costs might push the UK into a recession.
Ashley Webb, an economist from Capital Economics, shared his insights. He believes that the higher rates have begun to have their intended effect. This supports the view that the BoE might have concluded its interest rate hikes for now. Webb also forecasts that the Bank might not reduce these interest rates until the latter part of next year, implying that lending could remain weak for the foreseeable future.
Consumer Borrowing Trends
To get a complete picture, it’s essential to also look at how consumers, in general, are borrowing. Data from the BoE highlighted that net borrowing by consumers in September was just shy of £1.4 billion. This is a drop from nearly £1.7 billion in August. Despite this decrease, the growth rate of consumer credit over the past year has been rapid, hitting a peak of 8.0% – the fastest we’ve seen since the tail end of 2018.