UK mortgage approvals soared to their highest level in over two years in October, as falling interest rates reignited housing market activity but consumers became more cautious about borrowing and saving ahead of the Autumn Budget.
Latest data from the Bank of England showed mortgage approvals for house purchases rising to 68,303 in October, up from 66,115 in the previous month, marking the highest level since August 2022.
This increase exceeded expectations, with analysts forecasting a decline to 65,000. The rise in approvals signals a renewed appetite for property transactions, fuelled by more favourable borrowing conditions.
The effective interest rate – the actual rate paid by borrowers on newly drawn mortgages – dropped 15 basis points to 4.61% in October, the lowest since May 2023.
REMORTGAGING UPTICK
Remortgaging activity also saw an uptick, rising for the third consecutive month to 31,400 approvals in October, highlighting a continued shift as homeowners look to secure more competitive rates in a changing economic environment.
While mortgage approvals and borrowing activity increased, consumer sentiment remained cautious.
Net borrowing by mortgage debt rose by £0.9 billion to £3.4 billion, and net mortgage lending growth improved to 1.1%. T
Gross lending also rose to £20.2 billion in October, up from £19.5 billion the month prior. While the increase is a positive sign for the housing market, it underscores a complex landscape in which rising mortgage activity coexists with rising caution from consumers, who are clearly factoring in future economic uncertainties.
As the economy grapples with inflation and broader fiscal challenges, the housing market remains on edge.
The shift in borrowing patterns will be closely watched in the coming months, with October’s data providing some optimism amid a backdrop of broader economic wariness.
GROWING CONFIDENCE
John Phillips, Chief Executive of Spicerhaart and Just Mortgages, says “October’s rise in net mortgage borrowing to £3.4 billion and approvals for house purchases reaching their highest level since August 2022 reflect growing confidence in the housing market.
“The slight increase in remortgage approvals to 31,400 also suggests that homeowners are beginning to explore options as market conditions evolve.
“The recent Bank of England decision to cut interest rates to 4.75% in November will provide a welcome boost to borrowers, potentially encouraging more activity as we move into the new year. However, with inflation ticking up to 2.3% in October, affordability remains a critical concern.”
“It’s vital that policymakers focus on measures to sustain this upward trajectory.”
But he adds: “In light of the recent Budget, it’s vital that policymakers focus on measures to sustain this upward trajectory, ensuring the market remains accessible and stable for both first-time buyers and existing homeowners.
“While these figures are encouraging, continued targeted support is essential to build on this momentum and secure long-term growth in the housing sector.”
TURN FOR THE WORSE
And Simon Gammon, Managing Partner, Knight Frank Finance, says: “October was a busier month as buyers and sellers sought to squeeze deals through ahead of the Budget, but sentiment has since taken a turn for the worst.
“Most lenders hiked mortgage rates in the fortnight following the Budget, which will keep a lid on activity for the foreseeable. We expect mortgage rates to remain static through the new year at least, and we won’t see any more meaningful falls until the inflation data shows real improvements.”
And Tom Bill, head of UK residential research at Knight Frank, says: “The widespread availability of sub-4% mortgages and a sense the Budget would be better than feared drove housing market activity in October, resulting in transactions and mortgage approvals hitting their highest level in more than 18 months.
“The risk facing buyers and sellers now is whether Labour’s economic plans will work.
“Following the Budget, it’s almost impossible to get a sub-4% mortgage and if there is extended upwards pressure on unemployment, inflation and borrowing costs, a period of stagflation could put downwards pressure on house prices and transaction volumes.
“For now, we have revised down our forecasts marginally for UK house prices over the next three years.”
WAGE GROWTH SUPPORTING DEMAND
Jeremy Leaf, north London estate agent and a former RICs Residential Chairman, says: “Mortgage approvals are arguably the most important of reports on the housing market as they set the direction of travel over the course of the next few months at least.
“After September’s strong performance, the latest numbers show that solid improvement has been sustained and not blown off course by the increasing likelihood of higher-than-expected inflation and mortgage payments.
“Wage growth outpacing inflation and mortgage costs falling as a proportion of income is supporting strong demand.”
POSITIVE TREND
Nathan Emerson, CEO of Propertymark, says: “The amount of mortgage debt increasing represents a positive trend among consumers who are ready to take advantage of the decrease in interest rates and inflation.
“This could be the initial sign of a rush to the market for buyers and sellers in England and Northern Ireland in order to beat the Stamp Duty rises due to commence from April 2025.
“Despite winter months being historically quieter, we are likely going to see people taking advantage of more competitive mortgage deals due to the easing in inflation and a determination to save potentially thousands in tax before the new financial year.”
BUSY END TO 2024
Richard Merrett, Managing Director of Alexander Hall, says: “October’s mortgage approval figures demonstrate that, despite the looming uncertainty of the Autumn Budget, buyers continued to enter the market with intent, with a fifth consecutive monthly increase recorded.
“This market strength and consistency is a trend that has been apparent for much of this year and we expect it’s one that is now set to intensify considerably as we approach next April’s stamp duty relief deadline given that no extension was afforded during the Autumn Budget.
“Therefore, the mortgage sector is set for an extremely busy end to 2024 and an explosive start to 2025, as homebuyers look to make their move with haste in order to secure a stamp duty saving.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, adds: “Mortgage approvals for new purchases rose again, which bodes well for the market as we close in on the end of the year.
“Remortgaging numbers continue to improve slightly, suggesting a growing number of borrowers are drawn to ‘best buy’ rates offered by other lenders, rather than sticking with their existing provider as lenders compete for business.
“The effective interest rate paid on new mortgages decreased again to 4.61% as lower pricing at the time is reflected in the official figures. This may increase in coming months to reflect slightly higher mortgage pricing, although we expect that to ease again in coming weeks if Swaps continue to fall.”
STRONG APPETITE
Melanie Spencer, sales and growth lead at Target Group, says: “It’s important to remember that mortgage approvals can take weeks to work their way through the system, but still, a record month shows the appetite among potential borrowers and positive momentum we saw prior to the Budget.
“Now post-Budget, it will be interesting to see what next month’s figures report for November, particularly with the unsettling of swap rates and a subsequent rise in mortgage rates. We are starting to see some positive signs of movement among lenders, which will certainly be welcome among brokers and borrowers. Of course, all eyes will be on the path of interest rate, which has certainly cooled with the rise in inflation.
“Even so, the market will continue to prioritise innovation, whether it’s in product or criteria. With lenders looking to fill their pipeline for next year and meet their own lending targets, there’s no question we will see new developments to help keep the market moving. Leveraging the right technology and key integrations will be critical in making this a reality.”
HEIGHTENED DEMAND
Jonathan Samuels, Chief Executive of specialist lender Octane Capital, says: “Despite recent reductions to interest rates, we haven’t quite seen the reaction many may have expected with respect to mortgage rates trending downwards and so homebuyers continue to face affordability challenges when it comes to financing their purchase.
“However, this certainly hasn’t deterred them with October seeing the highest level of mortgage approvals since August 2022.
“With the stamp duty relief clock now ticking, this upward trend is likely to persist over the coming months and this heightened demand should help to further cultivate house prices.”
MORE CONFIDENT
Richard Pike, chief marketing and sales officer at Phoebus, adds: “What these figures tell us about economic trends and developments is that people are feeling more confident to take on mortgage debt than they have been for a while, and lenders are in good shape to lend.
“The mortgage industry can feel extremely encouraged that, with the political disruptions of 2024 now put to bed, we’re continuing to move in the right direction, with mortgage approvals now at their highest level since August 2022.
“I expect we’ll see an escalation in borrowing in Q1 2025 and well on into the year, as interest rates settle and customer and investor confidence rises.”
