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Net residential mortgage approvals saw a decline of 600 in February, bringing the total to 65,500, following a smaller drop of 400 in January, according to the latest Money and Credit statistics released by the Bank of England. This marks a continuation of the downward trend in mortgage approvals, raising concerns about the ongoing challenges facing potential homeowners in securing financing.
In a related trend, approvals for remortgaging with a different lender also fell in February, dropping by 800 to 32,000, after an increase of 2,100 in January. This decline in remortgage activity reflects a broader shift in the market, potentially driven by a combination of rising interest rates and shifting economic conditions.
This reduction in mortgage approvals and remortgaging is accompanied by a subtle yet notable increase in mortgage rates. The average interest rate on newly drawn mortgages rose by 2 basis points, reaching 4.53% in February. This is a slight increase compared to January, continuing a pattern of gradual rate hikes seen in recent months. Additionally, the rate on the outstanding stock of mortgages increased to 3.87% in February, up from 3.81% the previous month. These rate increases signal that the cost of borrowing continues to rise, which could further dampen demand for new mortgage products.
The effects of rising interest rates were reflected in the actions of some lenders, with Santander withdrawing its sub-4% five-year fixed-rate mortgage offering in February. The lender cited an increase in five-year market swap rates as the reason for this adjustment, highlighting the broader impact of market conditions on the availability and pricing of mortgage products.
The Bank of England’s figures also revealed that net borrowing of mortgage debt decreased by £0.9 billion, bringing the total to £3.3 billion in February. This follows a £0.8 billion increase in borrowing observed in January, and while this drop suggests some slowdown in borrowing activity, it is important to note that the annual growth rate for net mortgage lending remained largely unchanged at 1.9%. This indicates that while individual borrowing trends may fluctuate, the overall growth rate of the market has remained relatively stable.
In contrast to the decrease in net borrowing, gross lending saw an uptick in February, rising to £24.3 billion from £21.7 billion in January. This marks the highest level of gross lending seen since November 2022, demonstrating that there is still a significant level of lending activity in the market. At the same time, gross repayments also increased, climbing to £19.8 billion in February, up from £16.3 billion in January. This suggests that while borrowing remains strong in some segments, homeowners are also increasingly focused on repaying their existing mortgage debt.
Karim Haji, the global and UK head of financial services at KPMG, commented on the unexpected dip in mortgage approvals. He noted that this decline comes despite the backdrop of lower inflation, falling interest rates, and the upcoming increase in stamp duty. He suggested that the reduction in approvals indicates that affordability issues are continuing to put pressure on household finances. High deposit requirements, particularly for first-time buyers, may be further exacerbating these challenges, making it harder for many to enter the housing market.
Haji further remarked that while lower interest rates and inflation might typically encourage higher mortgage approvals, the ongoing affordability crisis remains a key obstacle. As the housing market faces these challenges, it may take longer for first-time buyers and others to secure the financing they need, particularly as lenders continue to tighten their criteria in response to ongoing economic uncertainty.
“Lenders must offer the right level of support to help those struggling financially both now and in the challenging months ahead,” stated industry expert Richard Pinch. As the economic landscape continues to shift, his comments reflect the growing concerns around household finances and the broader financial pressures many face in the current climate. With inflation remaining stubbornly high and the spectre of rising interest rates still present, lenders are under increasing pressure to offer more tailored support to borrowers, particularly those in more vulnerable financial situations. These measures are expected to be crucial in helping homeowners manage their mortgage commitments and avoid defaults during uncertain times.
Richard Pinch, senior director at Broadstone, further discussed the challenges facing the property market: “The current economic uncertainty, combined with persistently high inflation and elevated interest rates, has led to a noticeable decrease in both mortgage borrowing and approvals. The phasing out of the stamp duty holiday has also played a significant role in dampening the enthusiasm of potential homebuyers. Although house prices have remained strong in many regions, it’s clear that consumer confidence is still fragile. With high inflation continuing to erode disposable income, many potential buyers are holding back on making significant financial commitments.”
He continued, “Looking at the global picture, economies are holding their breath as they wait for the unveiling of President Trump’s tariff plans this Wednesday, which could further destabilise markets. Given the current environment, it seems unlikely that sentiment will improve significantly in the near term. However, there is still hope that the Bank of England may consider cutting interest rates in the coming months, which could provide some relief for borrowers and stimulate market activity.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, took a slightly more optimistic view, offering a perspective that many in the industry will find reassuring: “Despite the slight dip in mortgage approvals during February, the market seems to be stabilising for the time being. While the effective interest rate on new mortgages did increase to 4.53%, we’ve recently observed lenders adjusting their rates downwards in an effort to remain competitive. Should the Bank of England reduce interest rates further, we would likely see a boost in both confidence and affordability, especially as the stamp duty concession comes to an end.”
Harris also noted that the recent trend in remortgaging behaviour indicates a more cautious approach by homeowners. “The number of remortgaging cases has seen a slight decrease, which suggests that many borrowers are choosing to stay with their current mortgage provider rather than seeking out new deals. This trend could be attributed to the hassle and complexity of switching providers, with many opting for the simplicity of staying put rather than navigating the often time-consuming and paperwork-heavy process of switching to another lender. This cautiousness reflects broader concerns about the stability of the financial landscape and people’s reluctance to make significant changes during uncertain times.”
In summary, while the housing market is facing several challenges, from rising interest rates to inflationary pressures and the conclusion of stamp duty holidays, the overall sentiment remains cautiously optimistic. With the Bank of England potentially adjusting interest rates to help stimulate the economy, there is still hope for a more robust property market in the months ahead. However, lenders and borrowers alike will need to remain vigilant as the landscape continues to evolve, especially as economic uncertainties persist both domestically and globally.
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