Rising Mortgage Approvals a Sign of Positive Growth

After months of caution and reluctance from lenders to approve loans, it appears that mortgage approval rates in the UK may finally be on the rise again.

From hopeful first-time buyers to those perhaps seeking a buy to let mortgage for an investment property, this is good news in a period that has been characterised by financial uncertainty and political instability.

Since Liz Truss’s disastrous tax cut proposals which incited the end of her record-breaking short stay at number 10, mortgage approvals have fallen steadily as borrowing costs spiked and the housing market was rocked to the brink of bust.

Following the ex-Prime Minister’s infamous ‘Mini-Budget’, there have been a number of reasons for this decrease in mortgage approvals.

These included lender restrictions imposed as a means of protection against an unstable economy, the ongoing cost of living crisis, and a decrease in the number of people willing to borrow due to fluctuating house prices.

But following this shaky period, things look like they might finally be taking a positive turn.

According to the most recent data released by the Bank of England, the number of mortgage approvals rose for the first time in six months between January and February of this year. 

This period saw a rise from 39,647 to 43,563, following a sustained decline in the latter half of 2022. Although this signifies a gradual return to previous norms, February approvals remain a third lower than 12 months previous, so there is still quite a way to go to reach last year’s monthly average of 62,700.

Mortgage approval rates increased by a further 18% in March of this year to 52,000, which is good news for those seeking a loan who were previously struggling to get one.

This recent upward trend also appears to be aligning with UK house price forecasts, which predict a return to growth by the beginning of next year in most areas. 

As mortgages again become more accessible and the housing market begins to regain its strength, property investors should start to benefit from capital growth in a healthier and more stable market over the next few years.

The recent increase in mortgage approvals is of course a welcome development, but we are certainly not yet out of the woods in terms of this period of economic difficulty. 

Along with – as it would seem – everything else, the cost of mortgages has risen significantly over this past year making it more difficult and certainly less attractive for borrowers to take out a loan – particularly those looking to purchase their first home. 

These rising mortgage costs have been driven largely by a sustained increase in interest rates implemented by the Central Bank in an attempt to reduce the effects of inflation. 

The latest interest rate hike, announced on the 11th of May, is the 12th such consecutive increase to the Bank of England’s base interest rate, leaving it at a 15-year high of 4.50%. 

Although this is being used as a mechanism to bring down the unprecedented inflation rates that have weighed heavily on millions of UK earners over the past year, it will put more pressure on mortgage holders for the time being.

While the recently reported increase in mortgage approvals is certainly a welcome piece of news for prospective homeowners, it is equally important to keep an eye on what the Bank of England does next regarding interest rates.

Following their latest announcement, it seems that there may be a little longer to wait before these rates begin to recede back to more normal levels. However, solace can be taken in the fact that forecasts appear more hopeful for the housing market and wider economy than they did a year ago. 

Following the interest rate update, Andrew Bailey, Governor of BoE revealed that they no longer expected the UK to fall into recession, with average energy prices set to drop by the end of 2023. 

With this, he also said that inflation is expected to fall in the coming months as the bank works back towards its 2% target. That said, there is still a long way to go with the current inflation rate sitting at a cripplingly high 10.1%. 

Whatever happens, the coming months look set to be anything but mundane, so those concerned should keep close tabs on interest rates, inflation levels and the latest property market predictions.