New mortgages drop to low not seen since 2009 as high rates make buyers ‘reluctant to commit’


Mortgage approvals fall to levels last seen in the aftermath of the financial crisis as higher interest rates make buyers ‘reluctant’ to commit to a new home

  • Bank of England data shows a 2.3% drop in new mortgages taken out in January
  • It was the fifth monthly decline in a row as homeowners see rising mortgage payments
  • Brokers say they are “reluctant to commit” to new home loans

According to new data from the Bank of England, the number of mortgages approved for home purchases is currently as low as it was in the aftermath of the 2009 global financial crash.

Approvals fell 2.3 percent to 39,600 in January from 40,500 in December, the most recent figures show.

It was the fifth monthly decline in a row as many homeowners see their mortgage payments rise and their household finances remain under pressure.

The data also shows that total mortgage lending fell by 19 per cent to £2.5 billion in January.

Mortgage approvals continue to fall as higher interest rates deter potential buyers

At the same time, lending increased from £23.0bn in December to £23.3bn, while gross redemptions rose 2% to £21.5bn.

Mark Harris, CEO of mortgage intermediary SPF Private Clients: ‘On the face of it, the numbers are rather dismal, with net mortgage lending falling in January compared to December, while mortgage approvals for home purchases also declined.

This is at least partly because the average interest rate on new mortgages continues to rise sharply, by 21 basis points to 3.88 percent in January.

As borrowers will be well aware, this comes on the back of significant increases in the average rate paid over the past four months. It is no surprise that borrowers are hesitant to take out new mortgages.”

The ‘effective’ interest – the interest actually paid – on new mortgages rose by 21 basis points in January from 3.67 percent to 3.88 percent.

Meanwhile, the interest rate on existing mortgages increased by 4 basis points to 2.54 percent.

Although mortgage rates have slowly fallen since the start of the year, they are still well above 2021 lows. The rise is thought to continue to weigh on the market as higher rates prevent first-time buyers from getting up the real estate ladder even as the house prices fall.

Some mortgage lenders have slashed their rates below 4 percent in recent weeks, but some forecasts say these low rates could rise again soon.

‘A number of lenders have reduced their mortgage interest deduction. We’re not necessarily out of the woods yet, as swap rates, on which fixed rate pricing is based, are moving back up,” Harris added.

‘Borrowers would be wise to seek advice before dropping out or jumping in with both feet.’

Consumer loans rose in January, highlighting the impact of the crisis on the cost of living

Consumer loans rose in January, highlighting the impact of the crisis on the cost of living

The impact of the cost-of-living crisis can also be seen in the numbers, as individuals borrowed a further £1.6bn in consumer credit in January – the highest net borrowing since June 2022.

January’s additional consumer credit loans included £1.1bn in credit card loans, up from £0.2bn in net redemptions in December.

There was also £0.5bn in loans through other forms of consumer credit, such as car dealership financing and personal loans.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed-rate contract is about to expire, or because they have agreed on a home purchase, should explore their options as soon as possible.

This is Money’s best mortgage interest calculator powered by L&C that can show you deals that match your mortgage and property value

What if I have to borrow again?

Borrowers should compare rates and speak with a mortgage broker and be prepared to trade to secure a rate.

Anyone with a fixed-rate deal expiring in the next six to nine months should research how much it would cost them to re-mortgage now — and consider getting a new deal.

Most mortgage agreements allow fees to be added to the loan and are not charged until it is closed. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I buy a house?

Those with an agreed home purchase should also aim to secure rates as soon as possible so they know exactly what their monthly payments will be.

Homebuyers should be careful not to overextend themselves and be prepared for the possibility that house prices could fall from their current highs, due to higher mortgage rates limiting people’s borrowing capacity.

Compare mortgage payments

The best way to compare mortgage rates and find the right deal for you is to talk to a good real estate agent.

You can use our best mortgage interest calculator to display deals that match your home value, mortgage size, term and fixed interest needs.

However, bear in mind that rates can change quickly, so if you need a mortgage it’s advice to compare rates and then speak to an estate agent as soon as possible so they can help you find the right one mortgage for you.

> Check out the best fixed rate mortgages you can apply for