Number of mortgages approved goes up for first time since mini-Budget chaos

The number of mortgage applications approved by banks and building societies rose 10 percent in February, the first monthly increase since August last year, according to official data.

It suggests buyers are cautiously returning to the market as mortgage rates become more stable after September’s mini budget, which drove them higher.

Overall, a total of 43,500 home purchase mortgage approvals rose in February, compared to 39,600 in January, according to the Office for National Statistics.

However, the monetary value of mortgages lent fell from £2bn to £0.7bn, the lowest level since April 2016.

Experts said this also reflected the effects of the mini-budget as uncertainty had a delayed impact on the completion of home purchases.

Chris Sykes, chief technical officer at mortgage broker Private Finance said: ‘Total credit numbers will be due to the mini-budget breakdown at the end of 2022, which will lead to a sharp fall in mortgage availability and applications.

“Obviously, not many people were bidding on real estate at the end of 2022, when rates were around 6 percent, and it often takes four to six months for a purchase to come through, so that’s probably a result of that.

“We’ll probably see those numbers go up from month to month as things have come back to life in the market given the approval numbers.”

The ONS data showed that the average interest rate paid on new mortgages rose 0.36 percent in February to 4.24 percent.

Simon Gammon, managing partner at broker Knight Frank Finance, said: “Unless financial conditions change dramatically in the coming weeks, we believe mortgage rates have found a natural bottom and while we may see more marginal cuts, substantial cuts are increasingly unlikely.”

Fixed mortgage rates skyrocketed last October as markets reacted to uncovered mini-budget tax cuts and drove up the cost of borrowing.

Average fixed rates peaked at 6.65 percent for a five-year fix and 6.52 percent for a two-year fix.

They have been on a steady decline since the start of this year, and in March, both the average two-year fixed-rate mortgage and the average five-year mortgage fell for the fourth month in a row to a six-month low, according to financial experts Moneyfacts.

The average two-year fixed-rate mortgage is now 5.32 percent, with the average five-year fixed-rate mortgage at 5 percent.

Jeremy Leaf, North London estate agent and former Rics residential chairman, added: ‘This one [mortgage approval] figures are current. Although the financing balance has fallen, the first increase in mortgage approvals in six months gives a clear indication of where the market is headed, especially after rising interest rates and inflation took such a hit in the last quarter of 2022.

“Demand is slowly recovering as mortgage rates begin to stabilize and more products are available as the crucial spring period approaches. This sets the tone for the rest of the year.’

It is unclear how the decline in mortgage lending will affect house prices.

Karen Noye, mortgage expert at asset manager Quilter: ‘How all this will affect house prices remains to be seen. Right now, we’ve seen some small price declines, but they’ve remained relatively resilient so far.

“How prices move towards the end of the year will depend on how volatile the economy is, the rate at which inflation falls and how far the Bank of England goes with rate hikes.”

This month, the central bank raised its base rate by 0.25 percent to 4.25 percent, raising borrowing costs for the eleventh time in a row. However, so far the move does not appear to have extended to fixed rate mortgages from lenders, including HSBC which cut rates in recent days.

The most recent data from Rightmove showed that prices are on average £3,000 higher than a year ago.