UK mortgage approvals up as "direction of travel" for rates is down

(Alliance News) - The trough in UK mortgage approvals is "behind us", data from the Bank of England suggested, though with interest rates at robust territory, a return to pre-virus highs is unlikely anytime soon.

Net mortgage approvals for house purchases totalled 47,400 last month, rising from 43,700 in September. October's figure was above the FXStreet cited consensus of a lesser increase to 45,000. October's figure snapped a three-month streak of declines in mortgage approvals.

Approvals fell as low as roughly 40,000 back in January. Since then, the road has been bumpy, rising as high as around 55,000 in June, before the string of declines that ended last month.

"With mortgage rates easing, the rise in mortgage approvals in October confirms that the trough in mortgage approvals is behind us," Capital Economics analyst Imogen Pattison commented.

"But with mortgage rates unlikely to fall much below 5% until H2 2024, mortgaged demand is likely to remain weak by normal standards."

The effective interest rate on newly drawn mortgages picked up to 5.25% in October, from 5.01% in September. It means the effective interest rate for October was where the Bank of England's bank rate stood.

The BoE by October had paused rate hikes, having decided against a lift in September. It paused again earlier this month, and another one looks likely in its final meeting of the year next month.

Pattison added: "Despite the stronger reading in October, mortgage approvals for house purchase are on track to total just 570,000 in 2023, the lowest since 2010. Our view that mortgage rates will hover close to 5% until H2 2024 means the recovery from here will be muted, with approvals only rising to 600,000 in 2024 still some way short of their usual level of around 800,000 before the pandemic."

According to the latest Rightmove weekly tracker, average 5-year fixed mortgage rate is now at 5.14%, down from 5.52% a year ago. The average two-year is now at 5.56%, down from 5.77%.

SPF Private Clients analyst Mark Harris commented: "The direction of travel for new mortgage rates continues to be downwards with five-year fixes available from sub-4.5 per cent, further boosting borrower confidence and ability to commit to a purchase."

The UK central bank noted net borrowing of consumer credit by individuals totalled to GBP1.3 billion in October, down from GBP1.4 billion in the previous month.

MT Finance analyst Tomer Aboody commented: "There are signs that the Bank of England's monetary policy is having the desired effect with a softening of consumer spending and confidence, despite the slight pick-up in mortgage approvals."

By Eric Cunha, Alliance News news editor

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