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