As a result of rising interest rates, mortgage demand has fallen to its lowest level since the depths of the 2020 shutdown, according to the most recent government data.
The Bank of England said that the number of home loan approvals fell to 35,600 in December from 46,200 in November marking the fourth consecutive monthly decline.
Due to the rising cost of borrowing, Threadneedle Street reported the lowest monthly mortgage approvals since May 2020. When the UK economy had a near-complete shutdown.
Excluding the epidemic and its immediate aftermath, the December total was the lowest since January 2009. When the economy was in the throes of a severe recession following the global financial crisis.
The Bank reported that the effective interest rate – the actual cost of borrowing – paid by newly drawn mortgages rose by 32 basis points to 3.67 percent in December, the largest monthly increase since December 2021, when Threadneedle Street’s nine-member monetary policy committee began a series of nine consecutive increases in official rates.
The monetary policy committee is expected to raise the federal funds rate by a tenth to 4% on Thursday.
Interest rates reduce UK mortgage demand
Ashley Webb, a UK economist at Capital Economics, predicted that the drag on housing market activity would intensify over the next six months because 75 percent of all outstanding mortgages were fixed-rate mortgages and “many existing borrowers have yet to feel the full effects of higher interest rates.”
UK residents have used savings instead of credit cards throughout the cost of living issue. In December, consumers paid off £500 million in credit card debt. While the increase in cash held in bank accounts was £3.9 billion compared to £5.7 billion in November.
“Overall, it looks that the cumulative effect of increasing interest rates is beginning to weigh more heavily on the economy. Webb expects this effect to grow throughout the year due to the high percentage of fixed-rate mortgages.
Thomas Pugh, an economist at the top audit, tax, and consulting business RSM UK, stated. “The decline in consumer credit to £0.5bn in December shows that after a period of resilience. Consumer spending may have weakened at the end of the year.” This increases the likelihood that the economy shrank in the fourth quarter and entered a recession.”
