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UK mortgage approvals fall to lowest level since June 2020

mortgage approvals. Streets and houses in the industrial revolution-era town of Blaenau Ffestiniog, on 3rd October 2021, in Blaenau Ffestiniog, Gwynedd, Wales. The derelict slate mines around Blaenau Ffestiniog in north Wales were awarded UNESCO World Heritage status in 2021. The industrys heyday was the 1890s when the Welsh slate industry employed approximately 17,000 workers, producing almost 500,000 tonnes of slate a year, around a third of all roofing slate used in the world in the late 19th century. Only 10% of slate was ever of good enough quality and the surrounding mountains now have slate waste and the ruined remains of machinery, workshops and shelters have changed the landscape for square miles. (Photo by Richard Baker / In Pictures via Getty Images) (Photo by Richard Baker / In Pictures via Getty Images)
Economists had expected a small rise in UK mortgage approvals to around 70,000, instead they fell. Photo: Richard Baker/In Pictures via Getty

The number of UK mortgages approved by lenders dropped to its lowest level since June last year, in a sign that the housing market could be cooling amid rising inflation and the cost of living squeeze.

According to the latest figures from the Bank of England (BoE) on Tuesday, there were 65,974 mortgages approved in April, down from 69,531 the month before.

This came in just below expectations, as economists had expected a small rise to around 70,000. The figures represented a 5.1% decline compared to March and a 23% fall compared to a year ago.

Net borrowing of mortgage debt by individuals also fell during the period to £4.1bn, down from £6.4bn in March.

Both measures are now below their 12-month pre-pandemic averages up to February 2020, before the stamp duty holiday and the “race for space” in the pandemic led to a housing market boom.

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The sharp cost of living squeeze, and the rise in UK interest rates, could now be dampening the market, with potential house buyers more nervous about taking on debt.

“Activity among purchasers is ebbing as the cost of living squeeze shrinks the pool of buyers,” Hina Bhudia, partner at Knight Frank Finance, said.

“Rates on certain products have doubled in the past 12 months and there is a real sense of urgency among many borrowers who sense they must act soon or reassess what they can afford.”

She added: “Demand to remortgage remains very strong as borrowers seek to beat rising interest rates. Certain lenders allow you to book rates up to nine months in advance, so thousands of borrowers are bringing forward decisions that in normal circumstances would have been put off.

“Lenders are struggling to stay on top of the flow of new applications and are withdrawing and repricing product lines to maintain service levels.”

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The BoE also revealed, as mortgage demand continued to fall, people were borrowing more on credit. Individuals borrowed an extra £1.4bn in consumer credit in April, on net, up from a £1.3bn rise in March.

This was the third consecutive month where borrowing was higher than the 12-month pre-pandemic average up to February 2020 of £1bn.

The additional borrowing in April of consumer credit was split between £700m on credit cards, and £700m through other forms of consumer credit such as car dealership finance and personal loans.

“Today’s figures show that consumer credit borrowing is very much on the rise, indicating that households are increasingly turning to credit to support their lifestyles.

“The fear is that with inflation at 9% — a 40-year-high — and soaring energy and fuel costs, the situation will only worsen as the cost-of-living crisis escalates,” Alice Haine, personal finance analyst at Bestinvest, said.

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“With consumer credit including different forms of borrowing, such as credit cards, personal loans, car dealership finance and overdrafts, the risk is that those that take on debt now may be creating a whole host of problems for themselves further down the line when costs rise even further.

“Anyone worried about the financial challenges ahead — such as the cost of energy through the winter months — should spend some time drawing up a family budget to make sure their finances can survive the colder months.”

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