Mortgage approvals jumped to their highest level since the mini-budget in February according to new figures, with the prospect of lower interest rates set to support the market in the months to come.
Bank of England figures showed that net mortgage approvals rose to 60,400 in February, up from 56,100 in January and the highest level since September 2022. Approvals for remortgaging also increased to 37,700 from 30,900.
The rise in mortgage approvals, which indicate future borrowing, reflects the fall in mortgage rates at the beginning of the year.
The ‘effective’ interest rate on newly drawn mortgages – the actual interest rate paid – fell by 29 basis points, to 4.90 per cent in February, its lowest level in six months.
“Life may be starting to return to the housing market,” Thomas Pugh, economist at leading audit, tax and consulting firm RSM UK, commented.
Commentators were hopeful that the positive momentum would continue in the weeks ahead thanks to the prospect of lower interest rates.
Although the Bank of England held interest rates at its last meeting, it suggested that rate cuts were on the table with markets expecting cuts to begin in June.
“More dovish tones from the Bank of England at the March meeting will underpin more increases in lending during the months ahead, and I wouldn’t be surprised to see approvals for house purchase moving above the 70,000 mark we were seeing during 2019 a little later this year,” Simon Gammon, managing partner at Knight Frank Finance, said.
Ashley Webb, assistant economist at Capital Economics, also said the figures showed that higher interest rates were having less of an influence on customers’ savings behaviour.
Cash deposits rose for the fifth consecutive month, but this was mainly driven by flows into interest-bearing instant access accounts rather than time accounts. Time accounts generally offer higher rates of interest because customers lock up their funds for a set period of time.
“This provides further evidence that households are no longer searching for higher interest rates by tying up money in fixed-term accounts,” Webb commented.
Consumer borrowing meanwhile fell to £1.4bn in February, down from £1.8bn in January, as consumers borrowed less on credit cards.