According to financial analysts, a steeper-than-anticipated decrease in mortgage approvals in October was likely due to a mix of a weaker economy and mortgage market pressures.
According to figures from the Bank of England, the number of mortgages approved by lenders reached its lowest monthly level in more than two years during October.
In October, 58,977 loans were given, compared to 65,967 in September.
According to financial observers, the data likely reflect two major factors: the mortgage market upheaval that followed the Truss administration’s mini-budget at the end of September and the sluggish demand for home purchases in the more challenging economy.
A Reuters survey of analysts predicted that little more than 60,00 mortgages would be approved.
At nearly £4 billion, the net growth in mortgage loans last month was also less than anticipated.
The pressure on household budgets caused by the cost of the living problem was also reflected in the levels of consumer borrowing.
In October, the Bank recorded a net increase of £769m in unsecured borrowing, accelerating from September’s £608m gain.
The data contribute to a larger picture of escalating financial difficulty.
The Bank of England believes the United Kingdom is already in a recession, but it won’t become official until the Office of National Statistics confirms that the economy contracted between July and September and October and December.
While the Bank has boosted borrowing costs through successive interest rate hikes since the end of 2021 to reduce inflation in the economy, the financial market shock that followed the now-scrapped mini-budget heightened lender pressure.
Certain areas of the financial services industry were gripped by the crisis of credibility in UK public finances, which caused the pound to fall to a record low.
Numerous mortgage lenders temporarily halted the issuance of new loans, increasing the cost of two-year and five-year fixed rates.
Tuesday’s data from Moneyfacts indicated that average two-year rates have yet to fall below 6%.
Monday’s study by the property website Zoopla warned that housing market activity was declining as mortgage rates soared during a period of the highest inflation in more than four decades.
It was expected that home prices would decrease by 5% in 2023.
Bestinvest’s finance analyst, Alice Haine, said on the outlook: “Since Rishi Sunak became prime minister on 21 October following the departure of Liz Truss, political and financial volatility have subsided, and the lowest two-year fix has now dropped to just under 5%.
“As a result of the autumn statement’s reassurance of fiscal stability and the Bank of England’s gloomy recession forecast earlier this month, the Bank of England is now expected to raise interest rates from their current level of 3% to between 4.25 and 4.5% – a slightly more palatable peak than the 6% or more that was feared after the Kwarteng mini-budget.
As the number of mortgage options available recovers, banks are once again competing for new customers, boosting the likelihood that new purchasers and those seeking to refinance may obtain a better bargain.
