Mortgage approvals surge as buyers rush to finalize deals

In October 2023, the UK witnessed a significant increase in mortgage approvals, with a total of 68,300 recorded, the highest since August 2022. Remortgaging activities also rose for the third consecutive month, with 31,400 approvals noted. The effective interest rate on newly drawn mortgages decreased to 4.61%, the lowest level since May 2023. This uptick in approvals occurred amidst a dynamic housing market influenced by recent political stability following the Labour Party's decisive victory in the July elections. However, expert opinions suggest that the increase in activity may be short-lived as lenders have begun to hike mortgage rates, potentially stifling future demand. The Bank of England's report highlighted the contrasting trends in consumer behavior, showing a slight decrease in net consumer borrowing, indicating growing reluctance to take on additional credit for major purchases. While there was a notable increase in credit card borrowing, the overall net consumer credit borrowing fell from 1.2 billion pounds to 1.1 billion pounds in October. Analysts pointed out that the annual growth rate for consumer credit also slowed, reflecting a cautious approach from households who are focusing on saving amidst high mortgage costs. Professionals in the real estate sector mentioned that the uptick in mortgage approvals was driven by necessity rather than opportunistic investments. Buyers were motivated by personal circumstances as opposed to speculative opportunities in the property market. Prolonged transaction times were noted, increasing the risk of chains breaking down as buyers pushed to finalize deals before the end of the year. The surge in approvals is perceived as the last significant burst of activity expected for 2024, signalling a possible slowdown in the housing market. Furthermore, concerns were raised about the rising number of mortgage arrears among homeowners struggling to manage increased mortgage costs along with other financial commitments. Stakeholders emphasized the importance of lenders supporting borrowers in distress, as many homeowners are close to falling behind on payments. Overall, while the increase in mortgage approvals indicates short-term momentum in the housing market, the combination of higher rates and cautious consumer sentiment may pose challenges for sustained growth moving forward.