Mortgage approvals rise for first time in six months

The level of mortgage approvals for home purchases bounced back in February, Bank of England figures show, but buyers are borrowing lower amounts at higher rates.

Mortgage approval rates rose by 9.8% between January and February to 43,536 last month.

This is the first monthly increase since August of last year.

But buyers are paying more for their mortgage, with the ‘effective’ interest rate up by 36 basis points to 4.24% in February.

Commenting on the data, Tom Bill, head of UK residential research at Knight Frank, said: “The mini-Budget moved further into the rear-view mirror for the UK housing market in February. 

“After effectively switching off in late September, the property market woke up again in January as stability returned to Westminster and the mortgage market. 

“That won’t be instantly reflected in mortgage approval numbers and the mini-Budget hangover is unlikely to have completely vanished by next month. Activity has been solid since Christmas as buyers accept the new normal for mortgage rates.

“For anyone with memories that stretch further back than 2008, it looks very much like the old normal. That said, more pain will creep into the system as owners move onto higher fixed-rate deals and combined with an increase in supply from the lows of the pandemic, it means we expect UK prices to fall by 5% this year.”

However, Karen Noye, mortgage expert at Quilter, highlighted that actual loan values are lower, with net mortgage lending to individuals decreasing from £2bn in January to £0.7bn in February.

This is the lowest level of net borrowing since April 2016 when the pandemic is excluded.

Noye said: “It’s clear that home buyers are cautiously returning back to the market in early 2023 after the huge shocks at the back end of last year made many put their house hunts on ice.

“How this all feeds through to house prices is yet to be seen. At present we have seen a few minor drops in prices but they have remailed relatively resilient as of yet. How prices progress towards the end of the year will depend on how volatile the economy is, the speed at which inflation comes down and how much further the Bank of England go with interest rate increases.”