Official figures show that UK mortgage approvals reached their highest level in 18 months in the month of March. This suggests that the property market continues to recover, despite recent increases in quoted rates.
The Bank of England announced on Tuesday that net mortgage approvals increased to 61.300 in March from 60.500 in February.
While slightly below the 61.500 economists predicted in a Reuters survey, this figure was the highest recorded since September 2022, and it marked the sixth consecutive month of growth.
In January 2023, mortgage approvals dropped to 39,800, as higher rates impacted demand. The average monthly approvals are closer to 66,000 than the 2016-19 average, signaling a market normalisation despite the steady increase in home loan costs in recent months.
The swap rates on which mortgage is priced have increased as markets reassess how soon they expect BoE to begin cutting interest rates after a 16-year low of 5.25 percent on the back of disappointing data on inflation.
Anthony Codling is an analyst at RBC Capital Markets. He said: “Given recent increases in mortgage rate, it was comforting that mortgage approvals rose in March.” The UK housing market has been slowly recovering despite the persistent economic headwinds and uncertainty about election dates.
The average quoted two-year mortgage in March with a 60% loan to value rose to 4,81 percent from 4,62 percent in February, but was still well below the recent peak of 6,22 cents in July 2023.
Several lenders including NatWest, HSBC and Santander increased rates last week on a variety of mortgage products. TSB has announced increases this week.
Aaron Strutt of Trinity Financial said that the increase was “not enormous, but it is enough to noticeably raise monthly payments”.
He added that “for the moment, the lowest rates are just below 4.4 percent. This is not bad, but higher than most borrowers will pay.”
The BoE reported that the “effective” rate of interest — the actual interest actually paid, which is a few months behind the quoted rates — for new mortgages dropped by 0.17 percentage point to 4.73 percent in March. This was the lowest interest rate since July 2023.
The BoE figures showed that the amount of money flowing into the economy (known as M4ex) increased by £12.1bn during March, which is the highest since October 2022.
The M4ex includes all notes and coins that are in circulation, as well as the sterling deposits of the rest private sector with UK banks and building society.
In March, credit borrowing grew by £1.6bn, compared to £1.4bn in Februrary, and businesses raised £10.2bn, the highest amount of net financing raised since May 2020.
Ashley Webb of Capital Economics said that the data from the central bank provided “further proof that the drag caused by high interest rates has started to fade” and that it supports their view that the Q1 economy recovered after the technical recession ended in 2023.