Interest Rates depress mortgage approvals in spring market

Official Bank of England figures shows that net mortgage approvals for house purchases totalled 61,100 in April, little changed from 61,300 in March.

Individuals borrowed a net £2.4 billion of mortgage debt in April, compared to £0.5 billion in March.

Similarly, net approvals for remortgaging decreased to 29,900 from 33,500 over the same period.
 
The ‘effective’ interest rate – the actual interest paid – on newly drawn mortgages increased slightly by one basis point, to 4.74% in April. The rate on the outstanding stock of mortgages increased by seven basis points, to 3.57% in April.

Karen Noye, mortgage expert at Quilter, says: “Given that mortgage rates remain volatile and the economic outlook still unpredictable it is unsurprising that people are less inclined to embark on huge life decisions like buying a house.

“However, there does seem to be a silver lining for the property market and better times might be ahead. Property transaction statistics produced by HMRC tell a slightly rosier picture. The provisional seasonally adjusted estimate of the number of UK residential transactions in April 2024 is 90,430, 10% higher than April 2023 and 5% higher than March 2024. But we must remember that it is 10% higher than a very low base given that there were comparatively few transactions last year.

“Although the housing market is certainly far from out of the woods, a drop in interest rates and clearer glide path for rates in the future will help buyers gain that certainty needed to make the leap and buy a new property. Despite significant affordability pressures many homeowners and buyers are coming to terms with the fact that rates are unlikely to return to the ultra-low level that we have become accustomed to before and during the pandemic. As memories fade of this time and lives can no longer be put on hold it is expected that demand will return to the market as people look for their next property.”

Tom Bill, head of UK residential research at Knight Frank, adds: “The fact mortgage approvals were flat in April reflects how stubborn inflation delayed a rate cut while rain deferred the start of the spring market. The number was 7% below the five-year average, excluding 2020. Since then, swap rates have continued to rise thanks to a deteriorating domestic and global inflation outlook, which will keep a lid on prices and activity.

“Meanwhile, transaction volumes picked up thanks to more listings, particularly in the early weeks of the year when inflation forecasts were more optimistic. Sales were still 12% below their five-year average but should hold up this year despite the July election. We expect average UK prices to rise by 3% in 2024 as a rate cut moves onto the horizon this summer.”
John Phillips, chief executive of Just Mortgages, adds: “We’ve observed a similar trend, with activity moderating after a particularly strong March. This could be due to a number of factors, including potential seasonal fluctuations or buyers taking a wait-and-see approach as rising interest rates are factored into their calculations.
 
“It’s crucial to maintain perspective. Mortgage approvals remain at healthy levels overall. However, navigating this evolving market landscape requires expert guidance. With swap rates continuing to influence mortgage product pricing, securing the most suitable and competitive rates becomes even more important.
 
“This is where experienced brokers come to the forefront. Advisors must stay up-to-date on market shifts in order to guide clients through the complexities of securing the right mortgage solution. By offering personalised advice and unwavering support, we empower our clients to make informed decisions and achieve their property goals, even in a changing market environment.”