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UK mortgage approvals slump for fifth straight month as higher rates hit buyers

mortgage  Apartment buildings are backdropped by skyscrapers of banks at Canary Wharf in London, Britain October 30, 2015. Picture taken October 30, 2015.  REUTERS/Reinhard Krause
The number of mortgage approvals made to home buyers is at its lowest level since May 2020. Photo: Reinhard Krause/Reuters

UK mortgage approvals fell in January to their lowest level in more than two years as the housing market continues to slow.

Around 39,600 mortgages were approved for house purchase in January, down from 40,500 in December, marking the lowest monthly total since May 2020. January data also marked the fifth consecutive monthly drop in approvals.

Read more: Inflation data will dictate Bank of England's next interest rate call, says Andrew Bailey

Excluding the onset of the COVID-19 pandemic, January’s figure was the lowest level of approvals since the 2009 financial crisis housing crash.

The “effective” interest rate – the actual interest rate typically paid – on newly-drawn mortgages increased to 3.88% in January, according to the Bank’s Money and Credit report. This was more than double the 1.58pc average rate in January 2022.

Read more: UK house prices slump to 11-year low

Approvals for remortgaging fell to 25,400 in January, down from 26,000 in December and the lowest level recorded since July 2012.

Net mortgage lending to individuals decreased from £3.1bn to £2.5bn in January.

“Affordability will remain the big challenge for first-time buyers, despite the slight fall in property prices, as they must also contend with higher household costs and dwindling real incomes. Meanwhile, with 1.4 million people on fixed rates expiring this year facing the reality of much higher repayment costs when they secure new deals, the recent run of weak house price data is likely to continue in the months to come,” Alice Haine, personal finance analyst at Bestinvest, said.

Households also borrowed an additional £1.6bn in consumer credit in January, jumping from £786m in December 2022.

Within the latest figure, £1.1bn of borrowing was on credit cards and the remainder was through other forms of consumer credit, such as personal loans or overdrafts.

Read more: UK house prices being cut by £14k to make a sale

Karim Haji, a head of financial services at KPMG, said: “The latest Bank of England data shows that consumers are continuing to be resilient, but reluctant to take on large, new financial commitments as consumers still have high – if not rising – inflation and higher interest rates to contend with.

“That’s why banks must continue to put in place measures to support struggling borrowers and focus on commitments to responsible lending.”

Households deposited an additional £3.5bn with banks and building societies in January, compared with £3.3bn in December.

Watch: How much money do I need to buy a house?

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