Britain’s mortgage market has contracted for a fifth month in a row, official figures show, as the jump in interest rates that followed Liz Truss’s September 2022 mini-budget continued to trigger a collapse in demand for new home loans.
The Bank of England said the drop in January took the number of mortgage approvals to the lowest level since 2009, which followed the 2008 financial crash, excluding the dramatic drop after the first Covid-19 lockdown in 2020.
Analysts blamed the mini-budget for the fall in demand for new mortgages to fund house purchases and a dive in the number of households re-financing loans while the prospects for the property market remained uncertain.
However, the fall in January was smaller than in the previous four months, suggesting some confidence was returning to the mortgage market, though at a much lower level than last summer.
Jason Ferrando, the chief executive of the online lending intermediary easyMoney, said: “There’s no doubt that September’s disastrous mini-budget and the mortgage sector uncertainty that followed has had a negative impact on the UK property market, leaving a decline in both mortgage approval and house prices in its wake.”
House prices have begun to fall in response to the decline in demand, though a slowdown in new housebuilding and the withdrawal of properties for sale, cutting the supply of homes coming on to the market, have limited the scale of the decline.
Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics, said the figures confirmed “that buyers were waiting for a large correction in house prices, and a larger fall in mortgage rates, before re-entering the market”.
Net approvals for house purchases, which are an indicator of future borrowing, decreased to 39,600 in January, from 40,500 in December. Approvals for households switching their loans to a new mortgage lender fell to 25,400 in January from 26,200 in December, the lowest level since July 2012.
Separate figures from the Bank of England for consumer borrowing showed a £1.1bn rise in credit card balances to take the total across all consumer credit in January to £1.6bn, double the previous month and the highest since June 2022, when it increased to £1.7bn.
Paul Heywood, the chief data and analytics officer at Equifax UK, said: “With these high borrowing costs, we can expect to see the total value of consumer borrowing continue to increase. Although, if the Bank of England succeeds in taking some heat out of the market, we may see borrowing levels fall in real terms.”
Consumer borrowing plummeted in 2020 during the first and second lockdowns before recovering in 2021, though with a much higher reliance on credit card borrowing than in the decade before the pandemic.
The proportion of consumer borrowing on credit cards has remained high ever since, which most analysts blame on the cost of living crisis.
