Significant Spike in Mortgage Approvals, Bank of England Data Indicates

It remains to be seen whether the most recent Bank of England base rate increase has a negative effect on mortgage application volumes and approvals over the coming months. Even so, figures from March suggest that the UK’s housing market remains as buoyant as ever.

Newly published data from the Bank of England indicates the highest number of monthly mortgage approvals since July last year, perhaps indicating the gradual relaxation of major banks’ eligibility criteria on the High Street.

Remortgage applications and approvals also hit a 12-month high, suggesting more people are borrowing more money against their homes than at any time since February 2020.

Net borrowing of mortgage debt increased by £1.9 billion from December, coming out at £5.9 billion in March; this is the highest increase recorded since September 2021 and is also significantly above the pre-pandemic average of £4.3 billion.

Figures from the Bank of England also show that a further £7.7 billion was deposited with banks and building societies by households at the start of this year – up from £2.7 billion in December.

Cautious Optimism

Speaking on behalf of Moneyfacts, finance expert Rachel Springall spoke with cautious optimism about the immediate outlook for the housing market.

“It will be interesting to see whether approvals will continue to grow or remain stable considering we have had an additional base rate rise since the last approval figures were collected,” she said.

This additional base rate increase – the third since December – took the new Bank of England base rate to 0.75% - a 0.25% increase on the previous 0.5% base rate.  However, Springall suggested that this is unlikely to have a major impact on mortgage application volumes, as mortgage rates have been steadily increasing irrespective of base rate hikes.

“The average two-year fixed mortgage stands at its highest point in over six years, but borrowers may well be seeking a longer fixed deal for more peace of mind amid increasing interest rates,” said Springall.

Average Mortgage Interest Rates

According to Moneyfacts, the average two-year mortgage interest rate now sits at 2.8%, having increased five basis points.

Elsewhere, the average three-year fixed rate deal is now being offered at 2.79%, while five-year fixed rate deals are hovering around 2.97% and 10-year deals at 2.90%. Interestingly, the average 95% LTV mortgage as a fixed-rate five-year deal has fallen slightly to 3.34%.

“We may well see many more borrowers change their mortgage in the months to come to try and reduce their repayments,” Springall suggested.

Cost of living increases are having an impact on the vast majority of UK households. New data from the Office for National Statistics suggest that 66% of British adults have had their finances squeezed during the first part of this year, with most highlighting skyrocketing energy bills as the biggest drains on their budgets.

Even so, Springall believes that the housing market will continue to perform strongly this year – particularly if lenders continue to adopt a more flexible and accommodating approach.

“Murmurings of loosening affordability criteria this year could see even more borrowers take the plunge, but there are also wider economic issues which may result in consumers putting their plans on hold,” she said.