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New mortgage loans fell by a fifth last month, official figures show, as borrowers waited to see if rates would fall
- The number of new mortgages for home purchases fell for the fourth month in December
- It follows sharp increases in mortgage rates at the end of 2022 – but rates are now falling
- Borrowing with credit cards and loans also fell by £1bn, data from the BoE shows
Mortgage lending fell by more than a fifth in December, the fourth consecutive month that the number of individuals borrowing to purchase a home has declined, according to Bank of England data.
A total of 35,600 mortgages were approved in December, the lowest level since May 2020.
Excluding the onset of the Covid-19 pandemic and the immediate period afterward, home purchase approvals are at their lowest level since January 2009 (32,400).
Mortgage approvals continue to fall as borrowers feel the impact of higher interest rates
At the same time, the total amount borrowed in the month fell by a quarter from £4.3bn in November to £3.2bn in December.
The average interest paid on new mortgages in December rose by 0.32 percent to 3.67 percent. It is the biggest monthly increase since December 2021, when the Bank of England started raising its base rate.
The interest rate on the outstanding stock of mortgages also increased by 0.12 percent to 2.50 percent.
This reflects widespread mortgage rate hikes in the wake of the mini-budget in September 2022, although those rates are now gradually falling.
Jeremy Leaf, a North London estate agent and former chairman of RICS, says: ‘We are always looking for indicators of what is likely to happen in the housing market and mortgage approvals are as good as any.
“These show what we’ve seen on the cutting edge: not a collapse in numbers, but a reaction to the mini-Budget shock as potential buyers try to come to terms with the ‘new normal’.”
Mortgage lending fell by more than a fifth in December compared to the previous month
Gary Boakes, director of Salisbury-based mortgage brokerage, Verve Financial added: ‘December was probably the slowest month I’ve seen in 10 years and this data highlights that. No one was interested in doing anything and people were just waiting to see if rates would drop further in January.
‘Two-year fixed rates are now hot again and the appeal of tracker products is quickly disappearing.
“Despite the chaos caused by Liz Truss’ mini-Budget, we’ve had months of positive interest rate cut news since then, culminating in a busy January.”
However, gross redemptions remained largely unchanged at £2.0 billion. Approvals for remortgages with another lender fell from 32,600 in November to 26,100 in December, the lowest level since January 2013 (25,800).
Customers borrowed £2bn of credit in December compared to £1.5bn in November
Data released today by the Bank of England also showed consumers borrowed an additional £0.5bn of consumer credit, far less than the £1.5bn borrowed in November.
While the British paid £0.5bn in net credit card redemptions, this was more than offset by £1bn in borrowing through other forms of consumer credit, including personal loans and car finance.
At the same time, households deposited a further £3.9 billion with banks and building societies in December.