The number of mortgage approvals granted to homebuyers declined significantly in September as borrowing costs rose.
The Bank of England said mortgage approvals for home purchases fell to 66,800 in September from 74,400 in August.
Much of the mortgage product disappeared from the market after the unveiling of the mini-budget on September 23, and lenders repriced their mortgages upwards. Many announcements made in the mini-budget have since been cancelled.
Hikes in the Bank of England’s base rate also pushed up mortgage rates.
Karim Haji, head of UK financial services at KPMG, said: “As we saw in September, lenders reacted to market turbulence by repricing mortgage rates or withdrawing products altogether.”
The situation worsened considerably when former Chancellor Kwasi Kwarteng unveiled his radical budget plan
Alice Haine, personal finance analyst at investment platform Bestinvest, said: “The panic in the market in the first three weeks of September may have been driven by rising interest rate expectations – the Bank of England raising the base rate by 50 basis points on September 22 to 2.25% – but the situation worsened dramatically when former Chancellor Kwasi Kwarteng unveiled his sweeping tax cuts plan unfunded taxes a day later.
“The mini-budget spooked the financial markets.”
She said “the mortgage pain is far from over,” adding that those whose agreements are expiring soon will have tough decisions to make.
The “effective” interest rate – the actual interest rate paid – on newly drawn mortgages rose to 2.84% in September, according to the Bank of England.
Rising energy bills on top of sky-high mortgages may make some homes simply unaffordable for people to stay in this winter
This is the biggest monthly increase since December 2021, when the Bank of England’s base rate started to rise.
Karen Noye, Mortgage Expert at Quilter, said: “Particularly as it gets colder, rising energy bills on top of sky-high mortgages may make some homes simply unaffordable for people this winter. …
“Later this week the Bank of England will likely raise interest rates again in an attempt to get inflation under control.”
Mark Harris, managing director of mortgage broker SPF Private Clients, said: “With further interest rate hikes likely this week, borrowers concerned about their mortgage should seek advice from a broker to find out what options are available. .”
Remortgage approvals, which only take into account remortgages with another lender, also fell in September, from 49,500 in August to 49,100.
Households also collectively deposited an additional £8.1bn with banks and building societies in September, up from £3.2bn in August.
It is the biggest increase in household deposits since June 2021, when the figure was £9.9bn.
When deposits to NS&I accounts were also included, a total of £8.9bn was paid into the accounts, which was well above the average monthly net flow of £5.3bn seen during of the last six months.
Savings rates have risen in recent months amid an increase in the Bank of England’s base rate.
Meanwhile, the annual growth rate of consumer credit, which includes credit card borrowing, personal loans, overdrafts and auto financing, accelerated slightly to 7.2% from 7.1% in August. in September.
This is the highest rate since March 2019, when annual consumer credit growth was also 7.2%.
In the latest total, the annual growth rate of credit card borrowing slowed from 13.2% in August to 12.1% in September, while the annual growth rate of other forms of consumer credit fell from 4.6% in August to 5.2% in September.
Rates paid on new personal loans fell in September, but those on interest-bearing credit cards and overdrafts rose, according to the Bank’s Money and Credit report.
Households will likely become even more cautious
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: “Looking ahead, we think households will remain wary, given that consumer confidence is still at an all-time low.
“Also note that households will likely become even more cautious as unemployment begins to rise in the coming months, as businesses seek to save in response to soaring borrowing costs.
“At the same time, the uneven nature of these savings surpluses means that some households have already exhausted their savings…
“Furthermore, the new surge in mortgage rates following the mini-budget will likely lead homeowners to increase their savings rate in order to pay off part of their mortgage when they come to refinance.”
The report adds that UK non-financial businesses borrowed £2.6bn in bank and building society loans in September, including overdrafts, on the net, compared to £7.6bn in net lending in September. august.