Dip in Mortgage Approvals Noted

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Mortgage approvals saw a minor decrease last month, but there remains strong borrowing activity among Britons aiming to enter the housing market. According to recent data from the Bank of England, there were 61,100 mortgage approvals for house purchases in April. This figure represents a slight drop from the 61,300 approvals recorded in March, which had marked a peak in the number of approvals since September 2022. The March data had indicated a notable uptick in housing market activity.

The slight decline in approvals from March to April suggests a cooling of the recent surge in the housing market, yet the overall trend indicates sustained demand for home loans. Despite this minor decrease, the number of approvals remains relatively high, reflecting ongoing interest among prospective homebuyers. This persistent demand underscores the resilience of the housing market despite broader economic uncertainties.

In parallel with the housing market trends, there has been a significant increase in ISA investments. Savers have been depositing record amounts into ISAs, driven by the current interest rates, which are at their highest level in 16 years. This surge in ISA investments highlights a broader financial strategy among households to take advantage of higher returns on their savings.

The data points to a strong appetite for both home purchases and savings, illustrating how households are adapting their financial strategies in response to the prevailing economic conditions. The high interest rates have clearly influenced both borrowing and saving behaviours, leading to increased activity in both areas.

While mortgage approvals have dipped slightly, the strong performance in ISA investments and the continued high levels of borrowing indicate that Britons are actively managing their financial portfolios. This balance between borrowing for property and saving in high-interest accounts reflects a cautious but optimistic approach to personal finance in the current economic climate.

In April, mortgage rates edged up slightly, as some lenders adjusted their expectations regarding the Bank of England’s timing for a potential reduction in interest rates from their current level of 5.25%. This adjustment in rates may have influenced the housing market, leading to a small decline in mortgage approvals for new purchases. Specifically, approvals fell to 61,100 in April from 61,300 in March. March had seen the highest number of approvals since September 2022, reflecting a period of increased activity in the housing market.

Alongside the decline in new mortgage approvals, approvals for remortgaging also saw a decrease. In April, there were 29,000 remortgage approvals, down from 33,500 in March. This drop suggests that fewer homeowners were looking to switch or renew their existing mortgage deals during the month.

Despite the drop in approvals, there was a notable increase in net mortgage borrowing. In April, net borrowing rose to £2.4 billion, a significant jump from £0.5 billion in the previous month. This rise indicates that while the number of approvals may have decreased, the total amount of mortgage debt being taken on increased considerably.

In contrast to the increase in mortgage borrowing, consumer credit borrowing saw a reduction. In April, borrowing via credit cards and other forms of consumer credit decreased to £0.7 billion, down from £1.4 billion in March. This decline in credit usage suggests that households were spending less on credit, possibly due to the higher cost of borrowing and a shift towards more prudent financial management.

Additionally, the data revealed that households’ savings grew substantially. There was an increase of £8.4 billion in money holdings last month. This rise in savings reflects a broader trend of households adjusting their financial behaviour in response to changing economic conditions, including the rising interest rates.

Households deposited £11.7 billion into ISAs last month, marking the highest amount since records began in 1999.

Mark Harris, Chief Executive of mortgage broker SPF Private Clients, commented: “Mortgage approvals for new purchases remained relatively steady compared to the previous month. This stability might be due to the slight rise in mortgage rates, which could have raised concerns about affordability and confidence among borrowers.”

He also noted that the average interest rate for newly-drawn mortgages increased by 7 basis points to 4.74%. This rise in rates reflects higher mortgage pricing, influenced by increasing swap rates.

Harris added that with inflation moving closer to its 2% target, an interest rate cut from the Bank of England is becoming more likely.