UK mortgage approvals have dropped to their lowest level since Covid-19 first struck two years ago as borrowing rates soared to an eight-year high.
Approvals for house purchases fell more than expected to 59,000 in October, from 66,000 a month earlier, and came below the previous six-month average of 66,000, the Bank of England said on Tuesday.
Economists in a Reuters poll had forecast 60,200. Mortgages were at their lowest level since spring 2020, the central bank said.
The “effective” interest rate — the actual interest rate paid — on newly drawn mortgages increased by 25 basis points to 3.09 per cent in October, the highest since 2014, the figures showed.
The rate on the outstanding stock of mortgages increased by 5bp to 2.29 per cent.
Mortgage rates are on the rise, pegging interest rate increases as the UK faces the swiftest inflation in 40 years. The rise in borrowing costs was exacerbated following market turmoil sparked by September’s “mini” Budget, unveiled by then-chancellor Kwasi Kwarteng, when the previous government planned large unfunded tax cuts.
“Average mortgage rates surged during October amid the chaotic days following the ‘mini’ Budget,” said Simon Gammon, managing partner at Knight Frank Finance.
“It wasn’t until very recently that lenders began dropping rates following the Bank of England’s intervention and subsequent scrapping of the government’s most controversial proposals,” he added.
Markets expect the bank to raise rates again at its next meeting in December.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, expects UK house prices to fall about 8 per cent over the next 12 months following the rise in mortgage rates.