Mortgage approvals rise for first time in six months

Mortgage approvals rose for the first time since August in a sign that the “worst is in the past”, Bank of England figures show.

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

However, the level of mortgage borrowing remained about 35 per cent lower than pre-pandemic levels as the rising cost of borrowing coupled with the cost of living crisis fed into caution among consumers.

Despite the rise in approvals, overall mortgage lending fell from £2 billion in January to £700 million last month which, outside of the pandemic period, marks the lowest level of net borrowing since April 2016.

A tenth interest rate rise in just over a year to 4 per cent in February also pushed up 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 with the start of the year. Interest rates have since risen further 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: “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 run-up to UBS’s takeover of Credit Suisse.

“The unknown is the extent to which banks respond to that volatility by tightening lending standards,” Beck said. “The optimistic view is that the capital and liquidity strength of UK banks mean there’s little effect, and lending to households can carry on as before. But in the pessimistic case, should lending standards tighten, it could mean further weakness in the housing market and a reduction in consumers’ ability to use debt to compensate for falling real incomes.”

Samuel Tombs, chief UK economist at the Pantheon Macroeconomics consultancy, said the economy was being supported by households eating into the “excess” savings they made over the pandemic, but these households will seek to rebuild the buffer when their incomes recover.

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

The average price of a home in the UK was £285,476 in February, according to Halifax’s house price index — 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.

The data also showed that net lending for commercial property turned negative in February, falling to minus £288 million, as investors held back out of concern about falling capital values.

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