Decline in mortgage approvals as interest rates rise post-budget
Mortgage approvals took a surprise fall in November after Rachel Reeves’ Budget resulted in higher interest rates, Bank of England figures showed yesterday.
The number of home loans approved by lenders fell to 65,720, a three-month low – compared to 68,129 in October – after the Chancellor’s announcement. Economists had expected this figure to rise slightly to 68,500.
Housebuilder shares fell after the data was published, with FTSE 100 companies Persimmon down 3.8 per cent, Barratt Redrow down 3.2 per cent and Taylor Wimpey down 3.4 per cent.
The decline in mortgage approvals came after the October 30 budget, which included policy measures expected to increase inflationary pressures. That will probably make the Bank of England cautious about cutting interest rates. And lenders have responded by raising rates on fixed-term mortgage deals.
Nathan Emerson, chief executive of property professionals organization Propertymark, said: ‘The impact of higher interest rates has undoubtedly had a profound impact on the housing market.
‘Consumers must have a certain level of confidence in their financial position to approach the buying and selling process.’
Struggle: The decline in mortgage approvals came after the October 30 budget, which included policies expected to increase inflationary pressures
Matt Swannell, chief economic adviser at the EY ITEM Club, said high interest rates on swaps – financial products used by lenders to price home loans – meant mortgage rates were “likely to remain high”.
However, other figures this week suggest the housing market remains robust.
Lender Nationwide said prices rose 4.7 percent from 2024, the strongest year since 2021. Activity is expected to increase in the early months of this year as buyers rush to finish their purchases to be completed before the stamp duty holiday comes to an end.
The ‘zero’ tax threshold for first-time buyers is £425,000, but will fall to £300,000 from April. Nationwide predicts a period of weakness for the market after that deadline passes and that home price growth will slow to a more moderate 2 to 4 percent in 2025.
Yesterday’s Bank of England figures also added to signs of a slowdown in the wider economy. Consumer credit – which includes credit card and home loans – grew just 6.6 percent in November, the slowest pace since June 2022.
Recent figures show that the economy stagnated in the third quarter of 2024 and the Bank of England estimates that it also saw zero growth in the last three months of the year.
Elias Hilmer, an economist at consultancy Capital Economics, said the latest data “indicates that household caution about borrowing and saving ahead of the budget has not disappeared.”
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