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UK mortgage approvals hits lowest since June 2020 as property demand cools

Mortgage approvals: A shopper walk past a mortgage advertisement displayed in a window in Sunderland
UK mortgage approvals fell by 10% last month. Photo: Lee Smith/Reuters

UK mortgage approvals fell by 10% last month, from 66,000 in September to just under 59,000, after Kwasi Kwarteng’s mini-budget sparked chaos.

According to the latest data from the Bank of England (BoE), this was the lowest number of approved mortgages by UK lenders since June 2020, when the property sector was hit by COVID-19 restrictions.

It was also down on the 69,489 seen in October of last year.

A handful of British banks pulled their mortgage deals after the mini-budget in September, while others hiked the interest rate on their offers.

The fall in mortgage approvals, which was larger than economists had expected, comes as the latest sign that the housing market is slowing.

Rising interest rates, a worsening cost of living crisis, runaway inflation, and continued economic uncertainty, are all dampening demand. The Bank of England’s base rate currently stands at 3%, up from 0.1% a year ago. It is expected to hit 4.5% by next summer.

Watch: Will UK house prices ever fall?

“It wasn’t until very recently that lenders began dropping rates following the Bank of England’s intervention and subsequent scrapping of the government’s most controversial proposals,” Simon Gammon, managing partner at Knight Frank Finance, said.

“Those rate cuts will come through in November’s data, but we probably won’t see much further easing until the new year. The positive news is things have settled down, but the market still feels very finely balanced.”

Net borrowing of mortgage debt by individuals decreased from £5.9bn to below £4.0bn in October, the lowest reading since November 2021, while the average rate on new mortgage loans increased by 25 basis points in October to 3.09%.

It came as Threadneedle Street also revealed that Brits borrowed an additional £800m in consumer credit during the month, as they looked to shore up their finances amid surging food prices and energy bills. This came in above the £0.6bn borrowed in September.

Read more: FTSE 100 hits three-month high amid hopes China will curb COVID policies

Meanwhile, UK households deposited an additional £6.2bn with banks and building societies in October. Within this, flows into time deposits significantly increased to £11.3bn from £2.9bn.

These were however partly offset by -£4.8 billion of flows out of interest bearing sight deposits, the BoE said on Tuesday.

Director of Benham and Reeves, Marc von Grundherr, said: “Although today's mortgage figures will bring no cause for celebration, they are certainly no cause for alarm either, and the decline seen is almost certainly a consequence of a disastrous mini-budget which still lingers in the air while the market seeks to navigate multiple challenges.

“But we must factor in seasonality too whereby mortgage applications always begin to reduce at the onset of winter. As fixed rate mortgage costs continue to fall in Q1, expect to see a restoration of buyer demand.”

Watch: What is inflation and why is it important?