UK mortgage approvals fell to their lowest in two and a half years in yet another sign that the property market is cooling as higher borrowing costs take their toll.
Mortgage approvals dropped to around 35,600 in December from 46,200 in November, according to figures from the Bank of England (BoE).
It is the lowest monthly reading since May 2020, when the housing market was shut because of the COVID lockdowns. It is also the fourth consecutive monthly decrease in mortgage approvals.
“Homebuyers were put off by the surge in borrowing costs in the wake of the mini-budget chaos. Throw in double-digit inflation, falling real wages, a rising tax burden and the persistent cost of living crisis and it’s no wonder many were feeling jittery about a house purchase or move,” Alice Haine, personal finance analyst at Bestinvest, said.
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“With net mortgage borrowing also plummeting in December and approvals likely to be suppressed for some time, the knock-on effect on property prices — something already evident in the declines recorded towards the end of last year — is expected to continue,” she added.
The effective interest rate — the actual interest rate paid — on newly drawn mortgages increased by 32 basis points, to 3.67% in December, according to the BoE.
Karen Noye, mortgage expert at Quilter, said: “Over the past few months, we have witnessed a sizeable fall in the level of demand in the market. While mortgage rates have dipped somewhat since the highs seen towards the end of last year, monthly costs remain far higher than many people had become accustomed to in recent years.
“When coupled with rising energy bills — particularly now the winter has truly set in and people are becoming more reliant on their heating — we may be entering a time where more people begin to consider putting their properties up for sale in favour of a cheaper home.
Read more: Mortgage costs expected to rise this year, says Bank of England
“House prices have started to fall in recent months, and should the level of demand continue to decrease at the same time more people put their homes on the market, we will likely see this trend continue and a switch from the seller’s market to a buyer’s market could materialise.”
The figures also showed lending to consumers increased in net terms by £493m, much less than the £1.05bn forecast.
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