London close: Stocks climb as mortgage approvals rise

London's stock markets performed positively on Wednesday, as concerns over the banking sector continued to ease.

The FTSE 100 rose 1.07% to close at 7,564.27, while the FTSE 250 saw an increase of 1.28%, ending the day at 18,632.81.

Sterling meanwhile fell slightly against its major trading pairs, last sitting 0.19% lower on the dollar at $1.2319, and declining 0.06% against the euro to change hands at €1.1372.

“Stocks have made further gains today after a mixed session yesterday, and the continued absence of any fresh banking crisis is another big tick in the risk-on column,” said IG chief market analyst Chris Beauchamp.

“Oil continues to clamber back from the March lows, but it is far from clear whether this short-covering rebound can be sustained in the medium-term.

“Demand forecasts haven’t really picked up, and with no sign of any production cuts coming the overall bearish environment still seems to prevail for now.”

Mortgage approvals rise for the first time since summer

In economic news, mortgage approvals rose for the first time since last summer, according to the Bank of England's latest money and credit report.

Net mortgage lending decreased to £700m in February, compared to £2bn in January, the lowest level since July 2021, or April 2016 if excluding the pandemic.

Newly-drawn mortgages saw an effective interest rate of 4.24%, a 36-basis point increase.

However, net approvals for house purchases - an indicator of future borrowing - increased to 43,500, up from 39,600 in January.

That was the first monthly increase since August 2022, exceeding consensus expectations for 42,000.

Still, the figure remained well below the 2015-to-2019 average of 66,500, and significantly lower than February 2022's 69,100.

Following the UK government's ‘mini-budget’ in September, which featured £45bn of unfunded tax cuts, mortgage rates skyrocketed.

However, they began to ease after most measures were scrapped and the political landscape stabilised.

Bank of England interest rates had been hiked 11 times since the end of 2021, and now stood 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 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."

Elsewhere, the Bank of England said UK banks remained "resilient and strong enough to support households and businesses", but emphasised in a statement the "urgent need" to increase resilience in market-based finance.

After the collapse of Silicon Valley Bank in the US and the acquisition of Credit Suisse by UBS, the BoE said the regulations in place for UK banks provided them with "significant" financial resources to absorb shocks.

It added that "UK bank profits are currently healthy, and UK banks have no significant exposures to banks which have failed or are in trouble".

The Financial Policy Committee was monitoring the situation, but the UK banking system remained strong, the Bank explained.

Since the financial crisis of 2008, UK authorities had implemented a range of "robust" prudential standards, such as capital requirements and a liquidity framework that applies to all UK banks.

The UK banking system remained well capitalised, the BoE said, with the aggregate common equity tier 1 (CET1) ratio for major UK banks standing at 14.6%, and at around 18% for smaller lenders.

“Asset quality is stronger now than in the run up to the global financial crisis,” it said.

“And stress tests have shown that the banking system is resilient to a wide range of severe economic outcomes, including in a period of higher interest rates.”

Across the pond, meanwhile, the National Association of Realtors revealed that US pending home sales unexpectedly rose in February, increasing for the third month in a row.

Pending sales advanced 0.8% on the month, reaching an index of 83.2, ahead of predictions for a 2.3% decrease.

On a yearly basis, however, pending home sales dropped 21.1%.

Housebuilders leap on mortgage data, Next slumps

On London’s equity markets, Ocado Group was a notable riser, climbing 7.66% following a slump on Tuesday when it issued a trading update for its joint venture, Ocado Retail, with Marks and Spencer.

Marks and Spencer Group itself edged up by 0.57%.

Housebuilders experienced a surge, boosted by the mortgage approvals data, with Bellway, Berkeley Group, Barratt Developments, Taylor Wimpey, and Vistry all seeing gains of between 1.59% and 7.15%.

WPP saw a 2.74% increase after receiving an upgrade to 'outperform' at Exane, while Tesco rose 2.98% after an upgrade to 'overweight' from 'equalweight' at Morgan Stanley.

Essentra rallied by 5.41% after announcing a £150m return to shareholders and maintaining guidance, despite posting lower full-year profits following the disposal of its packaging business.

On the downside, Next saw a 4.34% decline after warning of a "difficult" year ahead, despite posting a better-than-expected 5.7% increase in pre-tax profit to £870.4m in the year to January 2023.

Smith & Nephew also weakened by 1.1% following a downgrade to 'underweight' from 'overweight' at Barclays, which predicted further share losses in orthopaedics.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 7,564.27 1.07%
FTSE 250 (MCX) 18,632.81 1.28%
techMARK (TASX) 4,530.52 0.59%

FTSE 100 - Risers

Ocado Group (OCDO) 478.00p 7.66%
Prudential (PRU) 1,089.00p 4.26%
M&G (MNG) 185.95p 3.68%
Barclays (BARC) 142.02p 3.53%
Land Securities Group (LAND) 596.60p 3.36%
Phoenix Group Holdings (PHNX) 566.80p 3.17%
Legal & General Group (LGEN) 236.80p 3.14%
Tesco (TSCO) 262.50p 2.98%
3i Group (III) 1,658.50p 2.98%
Persimmon (PSN) 1,236.50p 2.96%

FTSE 100 - Fallers

Next (NXT) 6,434.00p -4.34%
Smith & Nephew (SN.) 1,120.50p -1.10%
Pershing Square Holdings Ltd NPV (PSH) 2,755.00p -0.54%
Pearson (PSON) 820.80p -0.51%
Associated British Foods (ABF) 1,943.50p -0.44%
Mondi (MNDI) 1,304.50p -0.38%
Convatec Group (CTEC) 220.00p -0.27%
British American Tobacco (BATS) 2,875.00p -0.21%
Compass Group (CPG) 2,000.00p -0.20%
BAE Systems (BA.) 986.40p -0.16%

FTSE 250 - Risers

Bellway (BWY) 2,187.00p 7.15%
Inchcape (INCH) 752.50p 6.81%
Hammerson (HMSO) 22.80p 6.49%
Synthomer (SYNT) 116.10p 6.03%
Carnival (CCL) 700.60p 5.42%
Essentra (ESNT) 187.00p 5.41%
Wood Group (John) (WG.) 201.40p 5.11%
Bridgepoint Group (Reg S) (BPT) 215.40p 5.07%
Currys (CURY) 56.85p 4.99%
Moneysupermarket.com Group (MONY) 255.80p 4.75%

FTSE 250 - Fallers

W.A.G Payment Solutions (WPS) 88.60p -4.22%
Abrdn Private Equity Opportunities Trust (APEO) 415.00p -3.24%
Syncona Limited NPV (SYNC) 145.00p -2.82%
Aston Martin Lagonda Global Holdings (AML) 225.70p -2.72%
Digital 9 Infrastructure NPV (DGI9) 65.90p -2.37%
SDCL Energy Efficiency Income Trust (SEIT) 82.40p -2.25%
Caledonia Investments (CLDN) 3,315.00p -2.07%
The Renewables Infrastructure Group Limited (TRIG) 122.80p -1.76%
Trainline (TRN) 259.30p -1.59%
Greencoat UK Wind (UKW) 153.90p -1.41%