Home-buyer mortgage approvals fell significantly in September

The number of mortgage approvals being made to home-buyers fell significantly in September, as borrowers’ costs increased.

The Bank of England said mortgage approvals for house purchases decreased to 66,800 in September, from 74,400 in August.

A large chunk of mortgage products vanished from the market after the mini-budget was unveiled on September 23, and lenders re-priced their home loans upwards. Many of the announcements made in the mini-budget have since been reversed.

Rises in the Bank of England base rate have also pushed up mortgage rates.

Karim Haji, UK head of financial services at KPMG, said: “As we saw in September, lenders reacted to the market turmoil by repricing mortgage rates or withdrawing products altogether.”

Alice Haine, personal finance analyst at investment platform Bestinvest, said: “The panic in the market in the first three weeks of September might have been driven by rising interest rate expectations – with the Bank of England increasing the base rate by 50 basis points on September 22 to 2.25% – but the situation escalated dramatically when former chancellor Kwasi Kwarteng unveiled his radical fiscal plan of unfunded tax cuts a day later.

“The mini-budget spooked the financial markets.”

She said the “mortgage pain is far from over”, adding that those with deals expiring soon will have difficult decisions to make.

The “effective” interest rate – the actual interest rate paid – on newly drawn mortgages increased to 2.84% in September, according to the Bank of England.

It was the largest monthly increase since December 2021, when the Bank of England base rate started rising.

Karen Noye, a mortgage expert at Quilter, said: “Particularly as it starts to get colder, increased energy bills on top of eyewatering mortgages may make some homes simply unaffordable for people to stay in this winter…

“Later this week, the Bank of England will likely once again ratchet interest rates up to try and tame inflation.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “With another interest rate rise likely this week, borrowers concerned about their mortgage should seek advice from a broker to find out what options are available.”

Approvals for re-mortgaging, which only capture re-mortgaging with a different lender, also decreased in September, to 49,100 from 49,500 in August.

Households also collectively deposited an additional £8.1 billion with banks and building societies in September, compared with £3.2 billion in August.

This was the biggest increase in household deposits since June 2021, when the figure was £9.9 billion.

When deposits into NS&I accounts were also included, a total of £8.9 billion flowed into accounts, which was well above the average monthly net flow of £5.3 billion seen during the past six months.

Savings rates have been rising in recent months amid increases in the Bank of England base rate.

Meanwhile, the annual growth rate for consumer credit, which includes borrowing using credit cards, personal loans, overdrafts and car finance, accelerated slightly to 7.2% in September, from 7.1% in August.

This was the highest rate since March 2019, when annual growth in consumer credit was also at 7.2%.

Within the latest total, the annual growth rate of credit card borrowing slowed from 13.2% in August to 12.1% in September, while the annual growth rate of other forms of consumer credit ticked up from 4.6% in August to 5.2% in September.

Rates paid on new personal loans decreased in September, but those on interest-bearing credit cards and overdrafts increased, the Bank’s Money and Credit report said.

Gabriella Dickens, a senior UK economist at Pantheon Macroeconomics, said: “Looking ahead, we think households will remain wary, given that consumers’ confidence still 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, the unequal nature of these excess savings means some households already have depleted their savings…

“In addition, the further surge in mortgage rates following the mini-budget likely will lead homeowners to increase their saving rate in order to pay off a chunk of their mortgage when they come to refinance.”

The report added that non-financial UK businesses borrowed £2.6 billion of bank and building society loans in September, including overdrafts, on net, compared with £7.6 billion of net lending in August.