UK mortgage approvals hit six-month low
Newsflash: UK mortgage approvals have fallen to their lowest level in six months, as high interest rates cool the housing market.
The Bank of England reports that net mortgage approvals for house purchases fell from 49,500 in July to 45,400 in August.
That’s the lowest number of home loans approved by lenders since February this year, and the latest sign that the 14 increases in UK interest rates since December 2021 have hit demand.
Net approvals for remortgaging (which only capture remortgaging with a different lender) saw “a significant decline” from 39,300 in July to 25,000 in August, the lowest since July 2012, the Bank says.
A report earlier this week showed that the number of first-time buyers in the UK has fallen by more than a fifth, as the jump in mortgage costs made it too expensive for some people to get onto the housing ladder.
Key events
Another sign of a cooling UK housing market: the number of house sales fell by 16% in August compared with the same month a year earlier.
That’s according to provisional HM Revenue and Customs (HMRC) figures.
An estimated 87,010 home sales took place across the UK last month, which was 16% lower than in August 2022 but 1% higher than July 2023.
It was the weakest August for house sales since 2020, when the market was dealing with the impacts of the coronavirus pandemic.
Compared with last year, UK residential transactions in Aug 23 were 16% lower. Surprisingly though there was a mild uptake in both estimated seasonally (1%) & non -seasonally (11%) adj figures on July 23 pic.twitter.com/WKyhyY2k1I
— Emma Fildes (@emmafildes) September 29, 2023
Full story: UK economy makes stronger recovery from pandemic than first thought
Richard Partington
The UK economy made a faster recovery from the Covid pandemic than previously estimated, according to revisions to official figures revealing a stronger performance than Germany and France.
In a boost for Rishi Sunak before the Conservative party conference in Manchester beginning this weekend, revised figures from the Office for National Statistics (ONS) showed gross domestic product was 1.8% above pre-pandemic levels at the end of the second quarter this year.
In August, the ONS had estimated the economy was still 0.2% below the level at the end of 2019 before the global health emergency triggered one of the deepest recessions on record.
The changes mean the UK economy is no longer the worst performer in the G7. The chancellor, Jeremy Hunt, said:
“We know that the British economy recovered faster from the pandemic than anyone previously thought, and data out today once again proves the doubters wrong.”
More here:
Eurozone inflation hits two-year low
Over in the eurozone, inflation has dropped to its lowest level in two years.
Consumer prices in the eurozone rose by 4.3% in the year to September, the flash estimate from statistics body Eurostat shows.
That’s a sharp fall on August, when prices rose by 5.2% per year, and the lowest reading for eurozone inflation since October 2021.
It was driven by a fall in energy prices, which were 4.7% lower this month than in September 2022.
But, food, alcohol & tobacco is expected to have the highest annual rate in September (8.8%, compared with 9.7% in August).
Services inflation slowed to 4.7% per year, down from 5.5% in August, while goods inflation dropped to 4.2%, from 4.7% per year in August.
This still leaves inflation over double the European Central Bank’s 2% target, but it’s a lot lower than a year ago (inflation was 9.9% a year earlier).
It could encourage the ECB to leave interest rates at their current (record) highs.
Diego Iscaro, head of European economics at S&P Global Market Intelligence, explains:
“The September “flash” estimate shows a larger than expected declines in both headline and core inflation. Base effects played a key role in explaining the sharp fall in inflation, but the figures also suggest that underlying inflationary pressures are becoming less intense.
Rising oil prices pose an upward risk to the immediate inflation outlook, but the expected slowdown in activity over the coming months should help to offset some of this impact.”
The figures reinforce the view that interest rates have likely reached their peak in the current tightening cycle. Excluding an acceleration in underlying inflationary dynamics over the coming months, the focus will now switch to the duration for which the current level of rates will be maintained. We currently expect the first cut in rates to materialise in June 2024.
Here’s Alice Haine, personal finance analyst at Bestinvest, on this morning’s UK mortgage figures:
“Mortgage approvals plunged 8% in August, as high mortgage rates caused major affordability challenges for buyers. Net approvals for remortgaging, which capture remortgaging with a different lender, also saw a significant decline as more homeowners stuck with their existing lender rather than switch to a new provider to avoid affordability checks.
While mortgage lending edged up for the fourth consecutive month, the decline in mortgage approvals – a forward-looking indicator – signalled that mortgage lending is likely to remain weak in the final months of this year as cost-of-living pressures and high borrowing costs make it harder for buyers to secure the homes they want. However, there is a hint of optimism in the air with estate agents reporting a rise in enquiries.
Wondering why lenders are trimming rates? Continued market uncertainty & affordability issues over the summer saw net mortgage approvals for house purchases fall 4,500 to 45,400, the lowest level in 6mths. @bankofengland pic.twitter.com/wb5AMKtlSY
— Emma Fildes (@emmafildes) September 29, 2023
The Bank of England’s latest mortgage data suggests further weakness ahead in the property sector, as higher interest rates continue to weigh heavily on lending.
Capital Economics explains:
The interest rate on newly drawn mortgages increased by another 16 basis points, from 4.66% to 4.82%.
And the further rise in average quoted mortgage rates to 5.7% in August, which takes a few months to feed through to actual mortgage rates, suggests more weakness in housing activity and prices lies ahead.
UK mortgage approvals hit six-month low
Newsflash: UK mortgage approvals have fallen to their lowest level in six months, as high interest rates cool the housing market.
The Bank of England reports that net mortgage approvals for house purchases fell from 49,500 in July to 45,400 in August.
That’s the lowest number of home loans approved by lenders since February this year, and the latest sign that the 14 increases in UK interest rates since December 2021 have hit demand.
Net approvals for remortgaging (which only capture remortgaging with a different lender) saw “a significant decline” from 39,300 in July to 25,000 in August, the lowest since July 2012, the Bank says.
A report earlier this week showed that the number of first-time buyers in the UK has fallen by more than a fifth, as the jump in mortgage costs made it too expensive for some people to get onto the housing ladder.
Estate agent Knight Frank have updated their forecast for UK house prices, and now expect a larger fall this year.
They say:
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Knight Frank now expect UK house prices to fall by 7% this year, more than our forecast of -5% in March
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Next year, Knight Frank expect prices to fall by 4%, less than the 5% we forecast earlier this year
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Forecasts for prime central London remains unchanged, but expect a slightly smaller fall (-3% rather than -4%) this year in prime outer London and a marginally stronger recovery from 2026
Just in: UK average mortgage rates continue to drop, as lenders offer better deals amid hopes that the Bank of England has ended raising interest rates.
Data provider Moneyfacts reports that:
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The average 2-year fixed residential mortgage rate today is 6.48%. This is down from an average rate of 6.50% on the previous working day.
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The average 5-year fixed residential mortgage rate today is 5.98%. This is down from an average rate of 5.99% on the previous working day.
Today’s GDP data is full of interesting nuggets.
And one is that UK household disposable incomes grew faster than inflation in April-June, having stagnated in January-March due to fast-rising prices.
Real households’ disposable income (RHDI) grew by 1.2% in Quarter 2, the ONS reports.
Household savings also increased in the quarter, which suggests that spending did not rise in line with this pickup in RHDI.
Sandra Horsfield, economist at Investec, explains:
Meanwhile, data for Q2 GDP broken down by sector, published for the first time today in accordance with the typical release cycle, revealed that household disposable income growth exceeded inflation, meaning there was a 1.2% quarterly increase in real terms – not least thanks to the rise in benefit payments in line with past inflation.
Consumption growth did not keep pace with this rise, meaning the household saving ratio jumped from 7.9% in Q1 to 9.1% in Q2.
Stocks have opened higher in London, as the upgraded UK GDP data brings some cheer to the City.
The FTSE 100 index is 41 points higher (+0.5%) at 7643 points, taking its gains this month to +2.8% – outperforming Wall Street which is in the red for September.
Retail chain JD Sports (+5.8%) is leading the risers, followed by online grocery group Ocado (+4.2%) and specialty chemicals maker Croda (+2.6%).
Neil Wilson of Markets.com says a “messy” September is coming to an end, with the FTSE 100 benefiting from higher oil prices:
BP and Shell have rallied 10% through September as crude broke to its highest in a year this month.
Elsewhere the seasonal weakness of September asserted itself once more – the S&P 500 and Nasdaq slipping around 5%, whilst the DAX and broader European equities ex-UK are down about 3%.
The DAX has fallen about 4% in the quarter, but still +10% YTD, whilst the S&P 500 is roughly 3% lower in the quarter and +12% YTD. Bonds clearly blown up a bit this month and the dollar and oil have risen sharply once more. WTI +30% QTD is the best quarter since Q1 2022.
