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UK mortgage approvals rise to highest level in over a year

UK lenders approved more mortgages in January, as the housing market picked up pic shows:  House hunting in Highgate North London today 11.5.23 As interest rates rise again  Rain was falling in a flash thunderstorm as storm hit t
UK lenders approved more mortgages in January, as the housing market picked up. (Gavin Rodgers)

The number of mortgage approvals in the UK reached the highest level in more than a year, as the housing market picked up.

There were 55,227 mortgages given the green light in January, up from 51,506 in December, according to the Bank of England.

This took it to its highest level since October 2022, just before the spike in mortgage rates following the mini-budget.

Purchase approvals rose by 7.2% month-on-month and 40.2% annually, and are now at their highest level since June 2023.

Read more: House sales see 15% uptick as property market rebounds

Approvals for remortgaging with a different lender remained stable at 30,900 in January.

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The BoE also reports that the ‘effective’ interest rate on new mortgages fell by 9 basis points, to 5.19% in January, as borrowers benefited from cuts to mortgage rates, following the fall in inflation last year.

Although the Bank of England has hiked interest rates to a 16-year high of 5.25%, markets think Threadneedle Street will start cutting rates this summer.

Alice Haine, personal finance analyst at investment platform Bestinvest, said that uncertainty around interest rate cuts is leaving first-time buyers in a limbo.

“The uncertainty is leaving first-time buyers and those looking to refinance with a difficult quandary? Should they lock in for two or five years, and which is best – a fixed or tracker deal? This will require careful consideration, particularly for existing homeowners emerging from cheap deals secured long before mortgage rates escalated so high.

"The rate on the outstanding stock of mortgages saw a 5-basis point increase in January to 3.41% as more people switched onto more expensive deals, highlighting how many existing borrowers are still on low rates secured before the BoE’s rapid rate-hiking cycle began,” she said.

“One thing is for certain, locking in a fresh deal is preferable to simply moving onto their lender’s hyper expensive Standard Variable Rate when they roll off their existing deal. The average SVR stands at 8.17% - not a rate many borrowers would like to contend with,” she added.

The average two-year deal currently stands at 5.75%, while a typical five-year deal is currently at 5.33%.

Aaron Milburn, UK managing director at credit intelligence provider Pepper Advantage, said signals that interest rates may have reached their peak have lifted mortgage approvals in January.

Read more: Is there an ethical way to invest in property?

“The Bank of England has clearly set a path to lower rates as inflation shows signs of steady decline, a move that has breathed new life into the mortgage market as banks pre-emptively lower their fixed-term rates to entice buyers. These moves appear to be paying off after a period of relative stagnation as banks tap into strong mortgage demand.

“While the increase in mortgage approvals is a positive sign, other corners of the market remain under significant pressure. Mortgage arrears remain high as the cost-of-living crisis persists – while economically mobile, cash-rich buyers feel that they are able to take on expensive mortgages, we need to remain cognisant that this is not the full picture in a polarised market. For home buyers and economists, all eyes will be on the Bank of England’s next rates decision in March.”

The data also showed that household borrowing posted a rebound in January, with borrowing rising to £1.9bn from £1.3bn in December.

This was largely driven by higher borrowing on credit cards, which increased from £300m to £900m in January. Other forms of consumer credit increased to £1bn from £900m.

Watch: Nationwide Becomes The Latest Mortgage Lender To Up Home Loan Costs

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