Mortgage approvals rose in February for the first time since last summer, official data showed on Wednesday, as the UK housing market started to shake off last autumn’s mini budget.
According to the Bank of England’s latest Money and Credit report, net mortgage lending to individuals decreased to £700m last month from £2bn in January. That is the lowest level since July 2021, or since April 2016 if the pandemic is excluded.
The effective interest rate – the actual interest rate paid – on newly drawn mortgages was 4.24%, a 36 basis point increase.
However, net approvals for house purchases, an indicator of future borrowing, increased to 43,500 from 39,600 in January, the first monthly uptick since August 2022 and above consensus expectations of 42,000.
The figure remains well below the 2015 to 2019 average of 66,500, however, and is down sharply on February 2022, when it was 69,100.
Mortgage rates soared following the government’s disastrous mini budget last September, which featured £45bn of unfunded tax cuts. But they started to ease after most of the measures were scrapped and the political landscape stabilised.
Interest rates, meanwhile, have increased 11 times since December 2021 to now stand at 4.25%.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said affordability remained an issue.
“The continued weakness of house purchase mortgage approvals in February confirms that buyers are waiting for affordability to improve via a large correction in house prices or a larger fall in mortgage rates that seen to date before re-entering the market.
“The risk of a renewed rise in mortgage rates, or a reduction in the supply of secured credit, now looms large, though for now we’re anticipating only a small increase in the spread between deposit rates and lending rates.
“Affordability, rather than mortgage availability, likely will remain the biggest headwind to housing market activity over the coming months.”
The Money and Credit report also showed that consumers had borrowed an additional £1.4bn net in consumer credit in February, down on January’s £1.7bn but above the consensus, for around £1.2bn. Around £600m of that was borrowing on credit cards.
Household total liquid assets – deposits with banks and building societies along with cash held in National Savings and Investment accounts – rose by £3.6bn in February, up from £3.3bn in January.
