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Britons are increasingly putting their plans to buy or move house on hold and putting their money in savings for a while as the cost of living rises, new data shows.
According to the latest figures from the Bank of England, net mortgage lending by individuals fell from £5.9bn in September to £4bn in October.
Mortgage approvals for home purchases also fell more than 10 percent to 59,000 in October from 66,000 in September, suggesting that home buying appetite is waning due to rising mortgage rates.
The figures show the effects of the mini-budget released by Liz Truss’s government on September 23, which shocked markets with unfunded tax cuts – now largely reversed – and led to a spike in mortgage rates.
Decrease appetite? Mortgage approvals fell more than 10% in October compared to September as the cost of borrowing to buy a home rose
Andrew Codling, CEO of real estate platform, Twindig said: “Mortgage approvals plummeted in October as the mini budget wreaked havoc on the housing market, driving mortgage approvals to their lowest level since June 2020.
Clearly this is not a good sign as we believe mortgage approval is the best indicator of the housing market. Mortgage approvals now lead to housing transactions in the future.’
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The decline in demand for mortgages appears to be related to rising interest rates.
The ‘effective’ interest rate – the interest actually paid – on new mortgages rose 25 basis points in October to 3.09 percent, according to the Bank of England.
However, many homebuyers will have faced the prospect of much higher rates in recent weeks. According to Moneyfacts, the average two-year fixed-rate mortgage currently stands at 6.08 percent.
The reason the Bank of England average is lower is that fixed mortgage interest rates can be made up to six months in advance.
Steve Seal, CEO of Bluestone Mortgages said: ‘The aftermath of the mini budget continues to take its toll, with lending continuing to decline.
“As lenders re-enter the mortgage market after extreme swap rate volatility, there are still strong headwinds ahead, which will no doubt have a huge impact on the homeownership dream.”
Also the prospect of falling house prices can now deter people from buying a house.
It is a particular concern for first-time buyers, as they often buy with small down payments and are at greater risk of negative equity if the value of their property falls.
Past their peak: Mortgage rates have fallen in recent weeks from their peak in October
But despite the Bank of England’s data, there are at least signs that mortgage rates are falling from recent peaks.
Alice Haine, personal finance analyst at investment platform Bestinvest, said: ‘As political and financial turbulence eases since Rishi Sunak became prime minister following Liz Truss’s resignation on Oct. 21, the lowest two-year fix has now dropped to just over 5 a year. . cent.
With markets reassured about fiscal stability following the autumn statement and given the Bank of England’s gloomy recession forecast earlier this month, the Bank is now expected to raise interest rates from the current level of 3 percent to around 4.25 percent to 4.5 percent. cent – a slightly more pleasant spike than the 6 percent or more feared after the Kwarteng mini-Budget.
“With the number of available mortgage products also recovering, it means banks are once again competing for new customers – increasing the opportunities for new buyers and those looking to refinance to get a better deal.”
Brits pile money on fixed-interest savings
As demand for mortgages declines, Britons who can afford it continue to put much of their extra money into savings.
Households deposited a further £6.2 billion with banks and building societies in October, according to the Bank of England.
Fixed rate savings seemed to be the flavor of the month, with £11.3bn in these accounts, up from just £2.9bn in September.
Fixed-rate savings agreements typically allow savers to tie up their money for one to five years in exchange for higher rates.
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However, the flow of money into fixed-rate savings was partly offset by the fact that money in easy-to-access savings accounts fell by a total of £4.8 billion.
Some of this money may have been transferred to fixed-rate accounts, but it could also show that Britons are diving into savings to cope with the rising cost of living.
The savings rate has risen to its highest level in more than a decade.
The typical interest paid to Britons who put money in new fixed-rate accounts with banks and building societies rose to 3.26 percent in October, up from 2.49 percent in September.
The best fixed rate deals broke the 5 percent mark last month. However, in recent weeks they have fallen back.
Sarah Coles, senior personal finance analyst at investment platform Hargreaves Lansdown said: ‘There was a huge fixed rate savings in October when £11.3bn was deposited into these accounts – a record high.
“This was more than eight times the amount spent on fixed income savings in September, reflecting a growing sense that we are approaching the top of the fixed income savings market.”
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