UK housing market warning as latest figures show big drop in mortgage approvals

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Mortgages: Expert advises public amidst rising base rates

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The dip in mortgage approvals brings the figures back closer to the 12-month average up to February 2020 of 66,700. Mortgage lending ballooned during the stamp duty holiday and the Bank of England puts part of October’s decrease down to the difference with September when many rushed to take advantage of stamp duty relief. Net borrowing in September stood at £9.3bn with October’s figures coming in at only £1.6bn. Heather Owen, financial planning expert at Quilter, commented that the large drop was “no surprise” adding: “Recent property transaction statistics from HMRC showed there had been an enormous 52 percent on month drop off in property sales following the withdrawal of the stamp duty holiday at the end of September and today’s figures further support the view that the property market is finally deflating.”

However Laura Suter, Head of Personal Finance at AJ Bell, suggested the current trend was more of a return to pre-pandemic levels rather than the market “coming to a standstill”.

Ms Suter added: “Despite the figures only being a month old, the picture they paint of mortgage interest rates is very different to current reality.

“The data shows that average mortgage rates fell to another record low in October, dropping to 1.59 percent.

“However, November saw rates tick higher in anticipation of a Base Rate rise and this is a trend we don’t expect to reverse any time soon.”

Director of broker Henry Dannell, Geoff Garrett agreed the figures showed “a return to normality rather than an exodus of buyer activity”.

A potential rise in interest rates is likely to hang over the decision-making of any potential new mortgage applicants.

In November the Bank of England voted to keep rates at 0.1 percent despite strong expectations of a hike.

Expectation has since mounted but December could see a rate rise after heavy hinting from the Bank and rising inflation amid a strong jobs market.

However recent market turbulence due to the new Covid variant and fears of new restrictions has cast uncertainty over when a rate rise might come.

Some analysts are now predicting February as the more likely date whilst this uncertainty remains.

It’s widely expected a rate rise would see interest rates move by 0.15 percent initially to reach 0.25 percent then up in 0.25 percent intervals thereafter.

Nicholas Christofi, Managing Director of Sirius Property Finance, commented that even with an increase “the cost of borrowing will remain very low and so we don’t anticipate any significant drop in buyer demand”.

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While demand has cooled slightly lack of supply in the housing market still seems to be maintaining growing prices with latest figures from Zoopla today showing an increase of 6.9 percent.

Zoopla found supply of new properties on the market has plummeted 42 percent below the five-year average.

Peter Beaumont, CEO of The Mortgage Lender, said: “While we may see a general slowdown of transactions – partly due to a seasonal deceleration – a significant drop in house prices is unlikely considering the ongoing lack of supply in the market.

“With the countdown on until we see some sort of interest rate rise, it’s possible that a number of homeowners and would-be buyers may choose to act quickly in order to lock in a decent mortgage rate.”

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