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Mortgage approvals fell for the fifth consecutive month at the start of the year, dipping to their lowest non-pandemic level since the aftermath of the financial crisis.
Figures from the Bank of England showed new mortgage approvals declined to 39,600 in January from 40,500 in the month prior, in what was the weakest month since January 2009 when the Covid-19 months are excluded.
The figures add to mounting evidence of a slowdown in the housing market, where prices are beginning to fall outright for the first time in a decade. Home prices dropped by 11 per cent on an annual basis, according to figures from Nationwide analysed by Capital Economics. The average price of a UK home now stands at £257,406.
Britain’s booming property market is cooling due to rising borrowing rates increasing the cost of mortgages, as well as a slowing economy and an inflationary cost of living crisis. The Bank’s monthly money and credit data showed the rate paid on new mortgages rose by 0.21 percentage points to 3.88 per cent at the start of the year. That is still a decline from the spike in borrowing costs that followed the mini-budget last September.
In a speech on Tuesday, Andrew Bailey, governor of the Bank of England, said that one in ten of mortgage holders will face higher loan repayments this year. “If new mortgage rates rise by three percentage points, as market rates currently suggest, the typical monthly interest payment will go up by just under £250,” Bailey said.
The Bank has raised interest rates from close to zero at the end of 2021 to 4 per cent, the highest since 2008. Investors are expecting at least two more rate rises this year, although Bailey warned that no decisions on further tightening had been taken.
Martin Beck, at the forecaster EY Item Club, warned that house prices still had further to fall.
“Stretched affordability is weighing heavily on demand and is likely contributing to a correction in prices. Though quoted mortgage rates have fallen back since the end of last year, property values still look very high,” Beck said.