Mortgage rates ‘significantly’ increase – but what does it mean for the housing market?
The number of mortgages being approved leaped in March in another signal that the outlook for the housing market is beginning to recover.
Figures released today by the Bank of England showed that mortgage approvals for house purchases rose “significantly” to 52,000 in March from 44,100 in February.
Lucian Cook, head of residential research at Savills, said the growth was fuelled by the ability to better plan prospective mortgage outgoings which has “brought buyers back to the housing market”.
He explained: “Savills’s latest research into buyers and sellers reveals that commitment to move has improved significantly in both in the short and long term. A net balance of 28 per cent have said that they are looking to move in the next three to six months, up from a net seven per cent in November 2022.
“This said, ongoing inflationary pressures and the prospect of further rate rises mean cash and equity rich buyers are likely to remain in pole position over the remainder of the next six months,” he added.
Mini budget fallout and impact on mortgages
As the dust begins to settle on the fall out from September’s mini budget, figures also showed that mortgage lending to individuals fell from a net flow of £0.7bn in February to net zero in March – the lowest level of net borrowing since June 2011, when the figure was £0.3bn.
Moreover, the average rate on new mortgages continued to rise in March, increasing by 17 basis points to 4.41 per cent.
“With mortgage approvals picking up again, it appears as though buyers are shaking off recent concerns about the wider economy and getting on with moving,” Mark Harris, chief executive of mortgage broker at SPF Private Clients, said.
He explained: “The worst of the pain may not be over with another quarter-point rate rise expected next week as inflation proves to be more stubborn than the Bank of England expected.
“The recent rise in swap rates, which underpin the pricing of fixed-rate mortgages, has resulted in lenders removing their market-leading lower loan-to-value products, with all the main players increasing pricing by 30 basis points.”
He continued: “However, swaps have plateaued over the past few days and started to edge downwards so if this trend continues, we expect sub-four per cent pricing to return once again.”
Wider housing market
While inflation continues to remain above 10 per cent, other reports released this week have pointed to a return to a more stable property market.
Figures by Nationwide showed that the price of homes rose 0.5 per cent during April. However, prices remain four per cent below their August 2022 peak.
“The UK housing market continues its convincing rebound following the chaos of the mini-budget,” Tom Bill, head of UK residential research at Knight Frank, said.
“Price declines appear to be bottoming out and transactions clearly hit their low-point in January. Buyers have accepted the new normal for mortgage rates as stability returns to the lending market. “
He continued “Boosted by savings accumulated during the pandemic, record levels of housing equity and a strong jobs market, we expect sales activity will be solid without being spectacular this year.
“Properties that tick all the right boxes will hold their value but some of the pandemic froth is disappearing so asking prices will come under pressure.”