Mortgage approvals continue to slide

The number of mortgage approvals fell sharply in January, official data showed on Wednesday, as higher mortgage rates weighed on demand.

According to the Bank of England, net mortgage approvals fell to 39,637 from an upwardly-revised 40,540 in December. Although slightly above forecasts for around 38,500, it remains the fifth consecutive monthly decrease in approvals.

It is also the lowest level, excluding lockdown-affected months, since January 2009.

Net mortgage lending was also down, falling to £2.5bn from £3.1bn, with the effective interest rate - the actual interest rate paid - on newly drawn mortgages increasing 21 basis points to 3.88%.

Mortgage rates spiked last autumn in response to the government’s disastrous mini-budget, although they have eased slightly since then. The cost of borrowing has also risen sharply throughout the year as the BoE looks to tackle inflation.

The BoE’s monthly Money and Credit report also showed people had borrowed an additional £1.6bn in consumer credit in January, £1.1bn of which was on credit cards. January’s figure was double the amount borrowed in December and well above the consensus for no change.

Households’ total liquid assets - defined as deposits with banks and building societies as well as any cash in National Savings and Investment accounts - rose by £3.5bn.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "Households were more willing in January than in previous months to draw on savings and to borrow to support their consumption, but it is too soon to call a decisive shift in behaviour.

"The combination of rising interest rates and low confidence continues to suggest that households will manage their finances cautiously over the coming months.

"Meanwhile, the further decline in mortgage approvals confirms that buyers are waiting for a large correction in house prices, and a larger fall in mortgage rates, before re-entering the market."

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: "We’re slowing destroying the financial resilience we built during the pandemic and unpicking our safety nets. We’re spending the cash in easy access accounts, and we’re building up credit card debt at an alarming rate.

"It’s no wonder that few people have the spare cash or optimism to consider buying a property. Buyers face much higher mortgage rates than we have got used to: they’ve fallen back from the peak in the autumn, but average rates of 3.88% push property out of reach for an awful lot of people."