UK markets closed
  • FTSE 100

    +52.48 (+0.69%)
  • FTSE 250

    +299.51 (+1.57%)
  • AIM

    +4.81 (+0.65%)

    -0.0013 (-0.11%)

    +0.0029 (+0.23%)
  • Bitcoin GBP

    -98.52 (-0.20%)
  • CMC Crypto 200

    0.00 (0.00%)
  • S&P 500

    +40.81 (+0.80%)
  • DOW

    +90.99 (+0.23%)

    +1.55 (+1.98%)

    +36.90 (+1.80%)
  • NIKKEI 225

    +744.63 (+1.90%)

    +78.00 (+0.47%)
  • DAX

    +56.88 (+0.32%)
  • CAC 40

    +6.74 (+0.09%)

Rising interest rates hit mortgage uptake amid inflation stranglehold

mortgage  Residential living in North London, UK
Home-buyer mortgage approvals edged up for the first time in six months in February. Photo: Getty (Karl Hendon via Getty Images)

Mortgage lending in the UK fell sharply last month to the lowest level since the summer of 2021, according to the Bank of England.

Net mortgage lending to individuals fell from £2bn in January to £700m in February, the lowest since July 2021.

This is the lowest level of net borrowing since April 2016 when it was also £700m, excluding the time during COVID pandemic.

Still, mortgage approvals increased by more than expected in February. Lenders authorised 43,500 home loans compared to 39,600 in January, the first increase since August.

The ‘effective', or actual interest rate paid on newly drawn mortgages increased by 36 basis points, to 4.24% in February.

“Affordability has become a major challenge for first-time buyers and those looking to refinance thanks to the burden on disposables incomes imposed by higher borrowing costs, sticky inflation and falling real wages,” Alice Haine, personal finance analyst at Bestinvest, said.

Read more: UK tenants hit by rising rents amid house price increase

“The challenge from here is whether the higher mortgage repayments many are now facing as they come to refinance their fixed-rate deals will inflict further damage on consumer spending, already dampened by the cost of living crisis. If households rein in expenditure further, the housing market could come under further pressure. With buyers and existing homeowners struggling to balance higher mortgage costs with increasing household expenses overall, buying ambitions may have to be constrained.”

Ashley Webb, UK economist at Capital Economics, added: “February’s money and credit data release suggests that higher interest rates were a further drag on lending in February, particularly in the housing market. That’s before the recent concerns over the health of global banks, which may prompt UK banks to tighten credit conditions further. Our hunch is that the economy will still enter a recession later this year.

“Overall, it’s clear that higher interest rates are weighing on the housing market.”

Read more: Six ways to bring down costs on rising mortgage rates

Approvals for remortgaging also increased from 25,364 in January to 28,093 in February.

Samuel Tombs at Pantheon Macroeconomics said: "The continued weakness of house purchase mortgage approvals in February confirms that buyers are waiting for affordability to improve, either via a large correction in house prices or a larger fall in mortgage rates than seen to date, before re-entering the market.”

Consumers borrowed an additional £1.4bn in consumer credit in February, on net, compared with £1.7bn borrowed during January.

This was split between £600m of borrowing on credit cards and £800m of borrowing through other forms of consumer credit.

Watch: How much money do I need to buy a house?

Download the Yahoo Finance app, available for Apple and Android.