Mortgage approvals rise for first time since August

Mortgage approvals rose for the first time since August, showing that the worst is seen in the past Bank of England figures.

The number of mortgages approved for house purchases beat economists expectations to reach 43,500 in February, up from 39,600 in January.

As the rising cost of borrowing and the cost of living crisis caused consumer caution, the level of mortgage borrowing remained about 35 per cent lower than pre-pandemic levels.

Despite the rise in approvals, overall mortgage lending fell from 2 billion in January to 700 million last month, which is the lowest level of net borrowing since April 2016 despite the fact that there was no increase in approvals.

In February, a tenth interest rate rose to 4 per cent, which increased the effective interest rate, which is the actual rate of interest paid, on newly drawn mortgages to 4.24 per cent, up by 0.36 percentage points compared to the start of the year. Interest rates have risen to 4.25 per cent as the Bank of England tackles double-digit inflation.

Martin Beck, chief economic adviser to the EY Item Club, said that the latest household lending data indicated continued weakness in housing market activity, albeit with signs that the worst may be in the past. The latest figures reflect the period before the global financial volatility caused by the collapse of Silicon Valley Bank and the UBS takeover of Credit Suisse.

The extent to which banks respond to the volatility by tightening lending standards is not known, Beck said. The optimism is that the capital and liquidity strength of UK banks mean there is little effect, and lending to households can carry on as before. If lending standards are tightened, it could lead to further weakness in the housing market and a reduction in the ability of consumers to use debt to compensate for falling real incomes, according to the pessimistic case. Samuel Tombs, Chief UK economist at the Pantheon Macroeconomics consultancy, said the economy was supported by households eating into the excess savings they made over the Pandemic, but these households will try to rebuild the buffer when their incomes recover.

House prices in the UK held up better than expected, with the latest data showing that they have stabilised so far in 2023 after wobbling at the end of last year.

The average house price in the UK was 285,476 in February, according to Halifax's house price index, which is 2.1 per cent higher than this time last year. The annual rate of house price inflation has held steady for three months in a row.

In February, net lending for commercial property fell to minus 288 million, as investors held back because of falling capital values, according to the data.

Matthew Pointon, senior property economist at Capital Economics, said the decline was small and that the recent banking crisis will lead to a tightening of credit conditions, with the ratio of UK bank debt to capital values still low by past standards, the risk of commercial property triggering a banking crisis here is low.