Mortgage approvals fell to the lowest level since 2009 if the slump during the Covid pandemic period is excluded, new Bank of England statistics show.

Approvals for house purchases dropped to 35,600 in December, from 46,200 in November. This was the fourth consecutive monthly decrease, and the lowest since May 2020.

If the onset of the Covid-19 pandemic and period immediately afterwards is left out, house purchase approvals are at the lowest level since January 2009 (32,400).

Approvals for remortgaging with a different lender went down to 26,100 in December from 32,600 in November, the lowest level since January 2013 (25,800).

The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by 32 basis points to 3.67% in December, the largest monthly increase since December 2021, when Bank of England rate increases started their current upward trend.

Industry reaction

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “We’re always looking for indicators of what is likely to happen in the housing market and mortgage approvals are as good as any.

“These show what we have seen at the sharp end – no collapse in numbers but a reaction to the shock from the mini-Budget as prospective purchasers try to come to terms with the ‘new normal’.

“Since then, mortgage rates have begun to fall which is tempting more back into the market at the start of this year.”

Gloomy

Mark Harris, CEO of mortgage broker SPF Private Clients, says: “At first sight the numbers are rather gloomy, with net borrowing of mortgage debt falling in December compared with November, while mortgage approvals for house purchases also dipped to the lowest since May 2020.

“Thankfully, the situation has significantly eased for borrowers since the mini-Budget fallout. Lenders continue to chip away at fixed-rate mortgage pricing as swap rates edge gently downwards.”

Simon McCulloch, CCO at conveyancing firm Smoove, says: “A series of consecutive hikes to the base rate, compounded with the prolonged effects of September’s Mini-budget and the typically quieter Christmas period, evidently deterred many prospective borrowers in December.

“With interest rates set to increase further over the course of 2023, mortgage market activity may remain muted relative to the busy years seen during the pandemic, which would likely also lead to a decline in house prices.”