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'Mortgage price war' sends approval rates to highest level since mini-Budget

'Mortgage price war' sends approval rates to highest level since mini-Budget

Mortgage approvals topped 60,000 for the first time since the month of the mini-Budget in February, as the average interest rates on new loans continued to slide, the Bank of England revealed today.

There were 60,100 mortgages approved in February, the Bank said, which was the highest figure since September 2022. While Kwasi Kwarteng’s disastrous “fiscal event” occurred in September, the subsequent surge in mortgage rates was mostly in October.

That caused mortgage rates to plunge, and while there was a slight recovery, the Bank of England’s cycle of 14 consecutive interest rate rises ensured that the mortgage market remained subdued.

The recovery came as buyers took advantage of the “mortgage price war” between lenders that kicked off 2024, when banks and building societies repeatedly slashed rates.

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Ashley Webb, UK economist at Capital Economics, said the rebound in approvals is “unlikely to continue in the near term”, but added that there will be a glut in new activity when the bank of England finally cuts interest rates. The City expects the first cut to come in June.

Katy Eatenton, mortgage and protection Specialist at St. Albans-based Lifetime Wealth Management, said: “The trigger in the rise in mortgage approvals for house purchase was the rate war between lenders at the very start of the year. Once rates started creeping up, the mortgage market started to slow down a little and the March data from the Bank of England may reflect this.”

The “effective interest rate” – the actual interest paid – on newly drawn mortgages fell from 5.2% in January to 4.9% in February. It peaked at 5.34% in November 2023. But with many homeowners still coming off fixed-rate deals agreed at a time of rock-bottom interest rates, the average interest rate on the overall stock of mortgages continued to rise, hitting 3.49%, up from 3.41%..