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UK mortgage approvals drop 10% as interest rates rise

EMBARGOED TO 0001 MONDAY OCTOBER 10 File photo dated 12/09/18 of model houses on a pile of coins and bank notes. Chancellor of the Exchequer Kwasi Kwarteng is being urged to
Home-buyer mortgage approvals fell significantly in September. Photo: PA

UK mortgage approvals fell by 10% last month and consumer credit also declined after a rise in interest rates made borrowing more expensive.

Figures from the Bank of England show that mortgage approvals for house purchases decreased “significantly” to 66,800 in September from 74,400 in August, yet another sign that the housing market is slowing.

Mortgage lending was unchanged at £6.1bn. The actual interest rate paid on newly drawn mortgages climbed by 29 basis points to 2.84%.

Karim Haji, UK head of financial services at KPMG, said: “As we saw in September, lenders reacted to the market turmoil by repricing mortgage rates or withdrawing products altogether.”

Alice Haine, personal finance analyst at investment platform Bestinvest, said: “The panic in the market in the first three weeks of September might have been driven by rising interest rate expectations — with the Bank of England increasing the base rate by 50 basis points on September 22 to 2.25% — but the situation escalated dramatically when former chancellor Kwasi Kwarteng unveiled his radical fiscal plan of unfunded tax cuts a day later.

Read more: Interest rates: UK households expect Bank of England to continue hawkish stance

“The mini-budget spooked the financial markets.”

She said the “mortgage pain is far from over”, adding that those with deals expiring soon will have difficult decisions to make.

A large chunk of mortgage products vanished from the market after the mini-budget was unveiled on 23 September, and lenders re-priced their home loans upwards. Many of the announcements made in the mini-budget have since been reversed.

Rises in the Bank of England base rate have also pushed up mortgage rates.

Interest rates are expected to climb sharply as the BoE attempts to control inflation (Yahoo News UK/Flourish)
Interest rates are expected to climb sharply as the BoE attempts to control inflation. Chart: Yahoo News UK/Flourish

Approvals for remortgaging, which only capture remortgaging with a different lender, also decreased in September, to 49,100 from 49,500 in August.

Households also collectively deposited an additional £8.1bn with banks and building societies in September, compared with £3.2bn in August.

This was the biggest increase in household deposits since June 2021, when the figure was £9.9bn.

Karen Noye, a mortgage expert at Quilter, said: “Particularly as it starts to get colder, increased energy bills on top of eye-watering mortgages may make some homes simply unaffordable for people to stay in this winter.

“Later this week, the Bank of England will likely once again ratchet interest rates up to try and tame inflation.”

Read more: Almost 28,000 Brits in personal insolvency amid cost of living crisis

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “With another interest rate rise likely this week, borrowers concerned about their mortgage should seek advice from a broker to find out what options are available.”

Consumers borrowed an additional £700m in consumer credit, down from £1.2bn in August, as credit card borrowing plunged to £100m from £700m. Other forms of credit include car dealership finance and personal loans.

Businesses also scaled back borrowing in September, with non-financial businesses borrowing £2.6bn in September, down from £7.6bn in August.

Watch: How does inflation affect interest rates?