Mortgage approvals in the United Kingdom fell to their lowest level since January 2023 in September, according to official data that illustrates the impact of high interest rates on lending days before the Bank of England decides whether to raise them.
According to numbers released by the central bank on Monday, net mortgage approvals for home purchases fell to 43,300 in September from 45,400 in August. The figure fell short of economists’ predictions of 45,000 and was 35% lower than in September 2019, before the outbreak.
Net remortgage approvals fell to 20,600, the lowest level since January 1999. The cuts come as the Bank of England reported that the average rate on new mortgages surpassed 5% in September for the first time since 2008.
In an effort to control inflation, policymakers have raised interest rates from an all-time low of 0.1% in November 2021 to 5.25 percent presently. Steep borrowing costs have progressively weighed on economic activity, resulting in virtually flat output over the past year, and Monday’s data implies that trend will continue.
Ashley Webb, an economist at Capital Economics, stated: “The further decline in bank lending in September will continue to weigh on activity, particularly in the housing market.
“This is consistent with our view that a mild recession may already be under way and it supports our view that the Bank of England will leave interest rates on hold at 5.25 per cent on Thursday.”
Markets broadly expect the central bank’s Monetary Policy Committee to maintain interest rates at 5.25 percent — the highest level since the 2008-09 financial crisis — as data shows signs of slowing economic growth and reducing pricing pressures.
The latest data from the Bank of England corroborate this view, showing that annual growth in the amount of money in the UK economy — known as M4ex — dropped by 4.2% in September. This is the greatest drop since records began in 2010, as well as the second contraction since the money supply became negative in August.
In September, yearly increase in household money supply decreased to 0.8%, the worst rate since records began in 1998.
Consumer borrowing declined to £1.4 billion in September from £1.7 billion in August, indicating that some households are cutting down on expenditure.
Households also shifted money in quest of higher returns in September, withdrawing a net £0.7 billion from banks and building societies. The movement maintained a pattern that began in August, and was fueled by big withdrawals from low-interest rapid access accounts in favor of higher-interest accounts.
Household net deposit flows into National Savings & Investments increased considerably in September, reaching £7.7 billion, the highest level since August 2020. The state provider boosted the interest rate on its one-year fixed bonds from 5% to 6.25% in August.
RSM UK economist Thomas Pugh predicted that the economy would “stagnate with little to no growth over the next year.”
“But the lagged effect of the huge rise in interest rates that has already happened, combined with the risk of further rate rises, could easily tip the economy into recession later this year or in early 2024,” he said.