Official data reveals a significant decline in UK mortgage approvals for September, marking the lowest point since January 2023. This decline is attributed to the impact of high interest rates on lending, and it comes just days before the Bank of England is set to decide on whether to raise interest rates.
The data from the Bank of England shows that net mortgage approvals for house purchases dropped to 43,300 last month, down from 45,400 in August, making it the lowest level seen since the beginning of this year.
Economists polled by Reuters had anticipated 45,000 approvals, indicating that the actual numbers fell short of expectations. Furthermore, these figures are 35% lower than the level recorded in September 2019, prior to the COVID-19 pandemic.
Net approvals for remortgaging also saw a decline, reaching 20,600 in September, marking the lowest point since January 1999. This suggests that many individuals have limited options but to stick with their existing lenders due to affordability constraints.
These statistics coincide with the recent increase in the average rate on new mortgages, surpassing 5% for the first time since 2008. This significant rise in interest rates, from a record low of 0.1% in November 2021 to the current 5.25%, is having a tangible impact on the lending market.
Economists believe that the continued decline in bank lending will have a noticeable effect on economic activity, particularly in the housing market. Some experts even suggest that a mild recession may already be underway. It is widely expected that the Bank of England will maintain interest rates at 5.25% in the near term.
The latest data from the Bank of England also highlights a contraction in the annual growth of money in the UK economy, known as M4ex, by 4.2% in September. This contraction is the most substantial since records began in 2010 and is only the second negative reading after money supply turned negative in August.
Furthermore, the annual growth in money supply for households slowed to 0.8% in September, the lowest since records began in 1998. This decrease in consumer borrowing, combined with the movement of money to accounts offering higher returns, suggests that households are adjusting their financial strategies.
Households also withdrew a net £0.7 billion from banks and building societies in September, continuing a trend that began in August. This shift is driven by substantial withdrawals from instant access accounts, which offer lower interest rates, in favor of accounts with more attractive rates.
Notably, net deposit flows into National Savings & Investments increased to £7.7 billion in September, the highest level since August 2020. The state provider had raised interest rates on its one-year fixed bonds from 5% to 6.2% in August.
Economists predict that the UK economy may stagnate with minimal to no growth over the next year. However, the delayed effects of the recent surge in interest rates, combined with the potential for further rate increases, could potentially push the economy into a recession later this year or in early 2024.