Mortgage approvals hit 17-month high

Figures from the Bank of England show UK mortgage approvals hit their highest level in 17 months in February, rising to 60,400 from 56,100 in January.

The volume of mortgage lending rose to £1.5 billion in February from £1.1 billion at the start of the year.

Net approvals for remortgaging also increased, from 30,900 to 37,700 during this period and the ‘effective’ interest rate – the actual interest paid – on newly drawn mortgages fell by 29 basis points, to 4.90% in February.

Stuart Cheetham, CEO of the mortgage lender MPowered Mortgages, said “Increased mortgage lending is slowly helping the property market’s recovery take root.

“A flurry of interest rate cuts in the first weeks of 2024 made mortgages cheaper and kick-started demand from many of the would-be homebuyers who sat out 2023.

“Net mortgage approvals climbed to 60,400 in February, a 17% increase compared to December’s 51,500. While this is solid progress, the road to recovery is long and we’re not yet back to a normally functioning market.

“For the market to consolidate these gains and get back to normal levels of lending, interest rates need to fall further and faster.

“Affordability remains extremely constrained in many parts of the UK, and this is impacting both buyers’ confidence and sellers’ willingness to put their home on the market when they know demand may be hit and miss.

“Lenders are competing hard on the rates they offer, both to new borrowers and to those remortgaging, but for rates to come down significantly we need a clear signal from the Bank of England that it will be ready to relax its tight monetary policy when it next sets the Base Rate in early May.”

John Phillips, CEO of Spicerhaart and Just Mortgages, said “The positive momentum we have seen across the market is certainly continuing, as net mortgage approvals rise once again in February and to its highest point in 18 months. This certainly mirrors what we are hearing from our nationwide broker network, which reported a very busy February – even with half-term in the middle. In fact, our brokers did as much business in the first three weeks of February as they did in the whole of January – and January was a fantastic month.

“With March bringing a strong end to the quarter, it’s encouraging to see that this is becoming more of a positive trend, rather than a new year bounce. Confidence is certainly returning to the market and affordability is showing signs of improvement. A significant drop in the effective interest rate paid on new mortgages is certainly helping.

“As ever, brokers remain essential in helping people get their buying plans back on track, as well as supporting those that are still feeling those affordability pressures. With access to the whole of market, brokers are best placed to help navigate the market and explore a much broader range of lenders to help meet all client requirements.”

Sarah Coles, Head of Personal Finance from Hargreaves Lansdown said “The Bank of England figures only give us half the picture. The half on show looks increasingly attractive, as the sun shines on the savings and mortgage market, but the other half of the picture is quietly being shredded somewhere out of the frame.

“The squeeze is easing for those on average incomes, who saw the biggest boost from the two NI cuts and are enjoying lower energy bills and the easing of inflation. Those on higher incomes aren’t benefiting quite so much from the tax cuts, but they always had more wiggle room, and the HL Savings & Resilience Barometer shows they’re building up a big cash cushion. This is why we’re seeing billions flood into the savings market.

“These higher earners are also increasingly prepared to return to the property market. In February we borrowed another £1.5 billion in mortgages, which is the most since January 2023. Meanwhile, mortgage approvals for house purchases – which is a strong indication of demand in the coming months – rose from 56,100 in January to 60,400 in February. This is the highest since September 2022. The strength in the market is reflected in Zoopla figures last week showing property sales were up 9% in a year.

“Unfortunately, at the same time, the squeeze hasn’t eased for those on lower incomes. They’re paying the price of frozen income tax thresholds, without getting the same benefit from the cut in the NI rate. They had far fewer costs to cut in the first place and the HL Savings & Resilience Barometer shows they have been running on empty for months. They’ve spent their way through any savings, and are running up serious arrears. However, because they were unlikely to be in the market for property in the first place, and they may not qualify for credit, the plight of lower earners is hidden in missed bills and the endless struggle to make ends meet rather than on show in this data.”