Mortgage approvals fall as rates rise after budget

Mortgage approvals experienced a surprise drop in November after Rachel Reeves’ Budget resulted in higher borrowing rates, Bank of England figures showed yesterday.

The number of home loans approved by lenders fell to a three-month low of 65,720 (down from 68,129 in October) after the Chancellor’s announcement. Economists expected the number to rise slightly to 68,500.

Housebuilder shares fell after the data was released, with FTSE 100 companies Persimmon down 3.8 per cent, Barratt Redrow down 3.2 per cent and Taylor Wimpey down 3.4 per cent. .

The drop in mortgage approvals came after the October 30 Budget, which included policies expected to increase inflationary pressures. This is likely to make the Bank of England cautious about cutting rates. And lenders have responded by raising rates on fixed-term mortgages.

Nathan Emerson, chief executive of property professionals body Propertymark, said: ‘The impact of higher interest rates has undoubtedly had a profound impact on the entire property market.

“Consumers need to feel a certain degree of confidence in their financial situation to approach the buying and selling process.”

Matt Swannell, chief economic adviser at the EY ITEM Club, said high rates on swaps (financial products used by lenders to price mortgage loans) meant mortgage rates were likely to remain high.

However, other figures this week suggest that the housing market remains strong.

Lender Nationwide said prices rose 4.7 percent during 2024, the strongest year since 2021. Activity is expected to intensify in the first months of this year as buyers rush to complete purchases before the stamp duty holiday ends.

The tax ‘nil’ rate threshold for first-time buyers stands at £425,000, but will fall again to £300,000 from April. Nationwide predicts a period of weakness for the market after that time frame passes and that house price growth will slow to a more moderate level of 2 to 4 percent in 2025.

Yesterday’s data from the Bank of England also added to signs of a slowdown in the broader economy. Consumer credit, which includes credit cards and mortgage loans, grew just 6.6 percent in November, the slowest pace since June 2022.

Recent figures showed the economy stagnated in the third quarter of 2024 and the Bank of England estimated it also experienced zero growth in the final three months of the year.

Elias Hilmer, an economist at consultancy Capital Economics, said the latest data “suggests that households’ caution with their borrowing and saving ahead of the Budget has not gone away”.