‘It’s not Armageddon’, but mortgage approvals bomb

Mortgage approvals dropped dramatically last month as the aftershocks of the disastrous Mini-Budget were felt in the property market.

But despite the fall industry figures have stressed this is not ‘Armageddon’ and ‘talk of a meltdown is wide of the mark’.

Statistics from the Bank of England show mortgage approvals for house purchases decreased to 59,000 in October from 66,000 in September, which was the six-month average figure.

Net borrowing of mortgage debt by individuals decreased from £5.9 billion to £4.0 billion last month, the lowest level in almost a year.

The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by 25 basis points, to 3.09% in October.

Approvals for remortgaging with a new lender increased slightly in October, to 51,300 from 49,500 in September, and were higher than the previous 6-month average of 47,300.

Industry reaction

Jason Tebb, CEO of OnTheMarket.com, says: “Our own figures show sentiment remained remarkably robust in October despite political and economic uncertainty, with 60 per cent of properties Sold Subject to Contract within 30 days of being advertised for sale.

“With interest rates and the cost of living continuing to rise, buyers may have less buying power but even in challenging markets, people need to move. Sellers should take advice from experienced local agents and price realistically or may find their properties stick on the market.”

Jonathan Samuels, CEO of property lender Octane Capital, says: “The latest mortgage approval figures are an expected consequence of the many challenges facing the market right now. Indeed, a reduction in buyer appetite comes as no surprise in the context of a worsening cost of living crisis, runaway inflation, and continued economic uncertainty. For now at least.

“However, despite the doom and gloom, the figures may defy the harshest critics as they have not dropped off a cliff as such. Compared to historic levels for this time of year they are down 12% when compared with previous levels seen in the same month in 2017, 2018 and 2019.”

Marc von Grundherr, director of Benham and Reeves, says: “Although today’s mortgage figures will bring no cause for celebration, they are certainly no cause for alarm either, and the decline seen is almost certainly a consequence of a disastrous mini-budget which still lingers in the air while the market seeks to navigate multiple challenges.

“But we must factor in seasonality too whereby mortgage applications always begin to reduce at the onset of winter. As fixed rate mortgage costs continue to fall in Q1, expect to see a restoration of buyer demand.”

James Forrester, managing director of Barrows and Forrester, says: “The decline in approvals and monies actually lent is the latest dent to property market sentiment, and is almost certainly down to a government that will be heavily featured on Santa’s naughty list this year.

“However, we also need to remember that the decline towards pre-pandemic normality is expected and in part due to the influence of a seasonal market slow down. Armageddon this is not.”

Iain Crawford, CEO of Alliance Fund, says: “The property market ebbs and flows and is well known to be cyclical. Yes, we’ve seen turmoil in the interest rate markets since the flawed Kwasi Kwarteng budget and the effect on money costs is feeding through to buyer sentiment for sure.

“But wait. Property owners have enjoyed rather a sweet time of late and even if there is an adjustment of 5% to 10% in prices, those owners are still well ahead of the game on accrued value,” he says.

“2023 will be a leaner property market, that is undisputed. But talk of price crashes and meltdowns are wide of the mark given that medium term mortgage rates are already dropping significantly.”