Mortgage approvals fall sharply - Bank of England

Mortgage approvals fell sharply in September, according to official data published on Monday, as interest rates continued to climb.

According to the Bank of England’s latest money and credit report, mortgage approvals for house purchases - a key indicator of future borrowing - decreased "significantly" to 66,800 from 74,400 a month earlier.

It was, however, not as sharp a decline as some had feared. Most analysts had expected approvals to fall to around 63,700.

The effective interest rate, meanwhile, on newly-drawn mortgages jumped 29 basis points to 2.84%, the largest monthly increase since December 2021, when the current rate-increasing cycle began.

Net borrowing of mortgage debt remained steady at £6.1bn in September, above the six-month average of £5.7bn. Gross lending rose to £27bn from £25.9bn in August, while gross repayments were little changed at £20.6bn.

Net consumer credit borrowing also increased, but by less than in August, when it rose by £1.2bn. Consumers borrowed an additional £0.7bn last month, the lowest since December 2021 and below consensus for around £1.0bn.

The slowdown was entirely attributed to credit card borrowing, which fell to £0.1bn from £0.7bn month-on-month.

In contrast, households added £8.9bn to their savings, well above the 2018-2019 average of £4.9bn.

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: "Households are acting with caution when deciding whether to save less or borrow more to maintain their real level of consumption amid the surge in inflation.

"Looking ahead, we think households will remain wary given that consumer confidence is on the floor. Note too that households likely will become even more cautious when unemployment starts to rise in the coming months as businesses seek savings in response to the surge in their borrowing costs.

"Meanwhile, house purchase mortgage approvals began to succumb to the surge in mortgage rates, falling back below their average this year, 68,200. And they look set to drop much more over the coming 12 months or so."

The BoE’s Monetary Policy Committee, which has so far raised interest rates seven times since December, is due to meet again on Thursday. Analysts expect rates to rise by 75 basis points to 3%, as the BoE continues to battle inflation, now at 10.1%.