Home buyer mortgage approvals drop 10%, Bank of England says, as analysts warn high rates will lead demand to ‘collapse’ and house prices to fall

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  • Approved home purchases fell to 66,800 in September from 74,400 in August.
  • This comes amid higher mortgage rates and cost-of-living concerns.
  • Mortgage rates have fallen since the mini-budget was passed, but may not fall sharply
  • Capital Economics predicts a “collapse” in demand from homebuyers
  • But JLL is forecasting a 6% drop in home prices in 2023 — less severe than many others.

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Mortgage approvals for homebuyers fell 10% in September, official data show, as analysts predict a “collapse” in demand.

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The number of loans approved for home purchases dropped significantly to 66,800 in September from 74,400 in August, according to Bank of England Money and Credit data.

Most of the month was before the ill-fated mini-budget on September 23, after which mortgage rates jumped even higher.

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This figure, which points to a future slowdown in housing transactions, comes amid higher mortgage rates, which remain above 6 percent on average, and concerns about the cost of living for many households.

Approvals down: While net mortgage borrowing was flat at £6.1bn in September, new home loans approved fell, suggesting a future fall in home purchases.

The interest rate on new mortgages also increased by 29 basis points to 2.84% in September, the biggest increase since December 2021, when the Bank of England began raising its base rate in an attempt to fight rising inflation.

But that’s much lower than the average interest rates offered to borrowers today, which are 6.50% for two-year fixes and 6.36% for five-year fixes, according to the latest data from Moneyfacts.

This is because mortgage rates are typically set six months in advance of the first payment, meaning that the typical rate could rise sharply in future reports as the impact of base rate increases and a mini-budget become apparent.

Our mortgage calculator lets you compare the rates you could get based on the value of your home and the size of your loan.

Analysts continue to forecast house prices to fall in 2023 and beyond, with real estate agent JLL saying today that prices will fall by 6% next year and new home buyers could be halved from pre-crisis levels (see “Recent Forecasts for the price of the house falls down).

Separately, Capital Economics senior real estate economist Andrew Wishart said a post-mini-budget hike in mortgage rates would turn a “slowdown” in demand for home purchases into a “crash.”

This came from what the firm said in a report on the state of the UK economy: “We no longer think the coming recession will be easy and instead we think it will be similar in size to the recessions of the mid-1970s and early 1990s.” .

The Bank of England Monetary Policy Committee will meet again this Thursday and is expected to raise its base rate by 0.75 percentage points to 3 percent.

The Bank of England’s hike pushed mortgage rates up, but they accelerated after former Prime Minister Liz Truss and Chancellor Kwaso Kwarteng’s September 23 mini-budget, which shattered confidence in the UK economy by announcing unfunded tax cuts.

Want to buy?  Analysts predict the number of people choosing to move home could drop sharply, but agents say existing purchases are largely ongoing.

Want to buy? Analysts predict the number of people choosing to move home could drop sharply, but agents say existing purchases are largely ongoing.

Housing market experts said the number of people taking out new mortgages could drop in October.

Jeremy Leaf, a north London real estate agent and former chairman of RICS housing, said: “These figures are already beginning to reflect intent to buy a home before the September 23rd mini-budget.

“On the ground, the situation worsened further in the weeks that followed, as uncertainty over mortgage payments replaced fears of rising costs of living.

“Fortunately, most of these approvals result in sales as buyers want to take advantage of already secured rates that are unlikely to be repeated for some time.

“Mortgage rates are also starting to come down, which has helped recover some of the lost demand, albeit rather slowly, but most sales are continuing rather than collapsing.”

Net borrowing of mortgage debt by individuals remained at £6.1bn in September, higher than the six-month average of £5.7bn, according to the Bank of England.

Meanwhile, the average rate on all outstanding mortgages increased by 7 basis points in September to 2.24%.

While mortgage rates skyrocketed after the mini-budget, some lenders, including Natwest, HSBC and Virgin, have started to cut them slightly.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Fortunately, the situation for borrowers has improved after the worst effects of the mini-budget.

“With another interest rate hike likely this week, borrowers concerned about their mortgage should seek the advice of a broker to see what options are available.”

Fresh forecasts for falling house prices

Separately, Capital Economics reiterated its forecast that UK house prices would fall by 12% by mid-2024, saying high mortgage rates would lead to a “fall” in demand.

The analyst firm said that quoted mortgage rates may have already peaked after the mini-budget, but they are unlikely to drop significantly for some time.

Increase in interest rate: According to Capital Economics, the mortgage interest rate should be a higher percentage of household income.

Increase in interest rate: According to Capital Economics, the mortgage interest rate should be a higher percentage of household income.

Senior real estate economist Andrew Wishart said: “Falling market interest rates now that sober policy is back means we may have already seen a peak in quoted mortgage rates.

“But hopes that mortgage rates will fall significantly and quickly are misplaced. Adjusting higher mortgage rates would cause transactions…

Credit: www.thisismoney.co.uk /

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