UK mortgage approvals fell to the lowest level since the start of the pandemic after a jump in borrowing costs choked off demand for property purchases.
(Bloomberg) — UK mortgage approvals fell to the lowest level since the start of the pandemic after a jump in borrowing costs choked off demand for property purchases.
The Bank of England said 46,075 new loans for house purchases were approved in November, down from 58,997 the month before and the least since June 2020 when the country was in lockdown. Economists had expected 53,000 approvals.
The UK central bank has lifted interest rates nine times in the past year to choke off inflation, which is lingering at a four-decade more than high five times the 2% target rate. That’s driven interest rates on mortgages close to 6% from around 1%.
Separate figures from the BOE indicated growing strain on household finances. Households tucked away less in savings for the second month running while they took out more credit card debt, in a sign that households are struggling with the rising cost of living.
What Bloomberg Economics Says …
“The plunge in mortgage approvals adds to evidence that a correction in the UK housing market is underway. Approvals dropped sharply in November and are down by nearly 40% since August, though that is distorted by an earlier rush to secure new loans as homebuyers looked to pre-empt mortgage rate rises.”
-Niraj Shah, Bloomberg Economics. Click for the INSIGHT.
Households drew £1.5 billion of credit in November, more than double October’s level and well above the £1.1 billion six-month average. The vast majority of the increase in borrowing was on credit cards.
At the same time, they deposited just £5.7 billion in savings with banks and building societies. That’s down from £6.1 billion in October and almost £10 billion the month earlier. Including separate deposits at the state-backed National Savings & Investments, the savings rate was below the six month average.
Lenders led by Nationwide Building Society and Halifax have said house prices have fallen for four consecutive months, the longest downturn since the global financial crisis in 2008.
Lower buyer demand could trigger a slump in prices of as much as 10% in 2023, according to JPMorgan Chase & Co. and Credit Suisse Group AG. That along with higher mortgage rates will put increasing pressure on the finances of households.
(Updates with figures from the statement from the third paragraph.)
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