UK mortgage approvals fall to lowest since late 2023 as borrowing costs rise
Higher borrowing costs are weighing on the UK housing market, with mortgage approvals for house purchases falling again in September. The decline comes as financial markets price in a Bank of England rate increase next week and as unsecured household borrowing grows at its fastest annual pace since 2018.
Highlights
- UK mortgage approvals fell to 53,443 in September from 54,814 in August, reaching their lowest since late 2023 as borrowing costs rise.
- Net mortgage lending dropped to £3.866 billion in September, its lowest since May, underscoring weakening demand amid anticipations of a Bank of England rate hike to 4%.
- Unsecured lending to consumers grew at a 9.8% annual rate in September, the fastest since April 2018, while consumer sentiment and retail sales weakened.
September lending data signals weaker housing demand
As reported by Reuters, citing the Bank of England, mortgage approvals for house purchases fell to 53,443 in September from 54,814 in August, a slightly bigger decline than economists had expected in a Reuters poll.Net mortgage lending, which typically lags approvals, also drops more sharply than forecast to £3.866 billion, its lowest level since May.
The rise in UK government borrowing costs in recent months, driven by the U.S.-Iran war, is feeding through to mortgage rates. Financial markets see a Bank of England interest rate increase to 4% from 3.75% as a near certainty next week.
Richard Pinch, a senior director at financial advisers Broadstone, says the continued decline in mortgage approvals and borrowing points to a housing market facing increasing pressure as affordability constraints and higher mortgage costs weigh on demand.
Consumer borrowing rises as household pressure builds
Britain’s budget watchdog forecast on Wednesday that mortgage repayments are on course to rise to their highest share of household income since 2009 over the next five years.Unsecured lending to consumers, often seen as a sign of household demand but sometimes also of stretched finances, grows at an annual rate of 9.8%, the fastest pace since April 2018. In September alone, unsecured lending increases by £1.914 billion, slightly below expectations and down from a record £2.683 billion in August.
Recent consumer indicators also point to softer household demand. An official retail sales measure last week shows an unexpectedly sharp slowdown in September, while Britain’s longest-running consumer sentiment gauge records its biggest drop this month since the COVID-19 pandemic.
Our earlier coverage of the Bank of England’s November rate outlook noted that persistent inflation and firmer UK data were pushing expectations toward a 25-basis-point hike to 4.0%. We also highlighted that policymakers were watching the fallout from the energy-driven shock and market volatility, signalling readiness to tighten policy if inflation risks continue to build.
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