Mortgage Approvals Resilient Despite Interest Rate Rises

August 2, 2023

The latest figures show that UK mortgage approvals rose during June, defying widespread predictions that the housing market was heading for a significant downturn. Approvals for new home loans rose from 51,100 in May to 54,700 in June, according to the Financial Times

The approval rates for remortgages also grew in the same period by 5,000, from 34,100 to 39,100. These figures go against the expectations of financial analysts who predicted that the property market would slump in response to the rising mortgage rates.

The Bank of England (BoE) put up interest rates by a further 0.25% in early August, making this the fourteenth consecutive rise since 2021 and taking the base rate to 5.25%. However, June inflation figures were better than expected, easing fears that interest rates would top 6% by the end of the year.

While house prices have dropped back slightly, this is mostly attributed to a natural rebalancing of the market after the overheated pandemic period, when buyers rushed to take advantage of the stamp duty holiday and to move to larger and more rural properties. 

The BoE’s most recent interest rate rise has largely been factored into the current cost of mortgages, so there are not expected to be any more significant shocks. It is also hoped that inflation will continue to fall in July, helped by lower energy prices and falls in the cost of some basic foods for the first time in eighteen months. 

In contrast, the cost of renting a home has surged in the past two years by as much as 20%. This is thought to be caused by fewer landlords entering the market and increased demand from tenants as they delay purchasing a home amid the ongoing cost of living crisis. 

Richard Donnell, research director at property portal Zoopla, said that high mortgage rates were having an uneven impact across the country. He commented: “The impact of higher rates is being felt most in southern England. In many lower value areas, the cost of buying with a 5.5 per cent mortgage remains cheaper than rental cost.”

However, these are still very challenging times for anyone seeking to get their first mortgage or to renew a current fixed-rate deal. With the cost of energy, food, and other essential consumer goods continuing to outpace the rise in wages, the cost of monthly mortgage repayments may become unaffordable for some homeowners. 

Anyone who is concerned about their ability to pay their mortgage is advised to contact their lender to discuss the situation as soon as possible, rather than miss payments or underpay. Earlier in the summer, the UK government and principal lenders agreed a Mortgage Charter that is backed by the Financial Conduct Authority. 

This means that mortgage customers will be offered confidential and tailored advice and support, and it will not adversely affect their credit history

Your home may be repossessed if you do not keep up with your mortgage repayments.

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