UK mortgage approvals hit lowest since June 2020 as housing market cools

The number of mortgages approved by UK lenders fell by 10% last month, after Kwasi Kwarteng’s mini-budget caused turmoil in the markets.

Mortgage approvals for house purchases decreased to 59,000 in October from 66,000 in September, new data from the Bank of England shows.

That’s the lowest since June 2020, when the housing market was hit by the first wave of Covid-19, down from almost 66,000 in September.

Some lenders pulled their mortgage offers after the mini-budget, while others lifted the interest rate on their deals – which may have put some buyers off.

Simon Gammon, managing partner at Knight Frank Finance, says this lending data shows activity “slowing markedly”.

Monthly mortgage approvals for the purchase of homes are running below long run averages, which may be a sign of things to come. The mini-budget weighed heavily on sentiment and it’s now clear many buyers have opted to postpone acting at least until the other side of Christmas, but we’d expect activity to be subdued until 2023 while borrowers digest what is a “new normal” for interest rates.

Gammon adds that the market feels ‘very finely balanced’, after the mini-budget turmoil ended:

Average mortgage rates surged during October amid the chaotic days following the mini budget. It wasn’t until very recently that lenders began dropping rates following the Bank of England’s intervention and subsequent scrapping of the government’s most controversial proposals.

“Those rate cuts will come through in November’s data, but we probably won’t see much further easing until the new year. The positive news is things have settled down, but the market still feels very finely balanced.

The Bank also reports that consumers borrowed an additional £800m in consumer credit in October, as households tried to cope with surging food and energy bills.

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With mortgages approvals sliding, people selling their home need to price it ‘realistically’ to get a sale, warns Jason Tebb, CEO of property search website OnTheMarket.com:

With interest rates and the cost of living continuing to rise, buyers may have less buying power but even in challenging markets, people need to move.

Sellers should take advice from experienced local agents and price realistically or may find their properties stick on the market.”

Yesterday, property website Zoople reported that demand had weakened, prompting homeowners to accept offers below the asking price.

That trend could accelerate if prices to start to correct, having risen strongly over the last two years.

Strike News 2): UK firefighters are to vote on whether to strike, in the latest industrial dispute over below-inflation pay offers.

The Fire Brigades Union (FBU) said the “historic ballot” comes after its members – firefighters and control staff – rejected a 5% increase to their wages.

The strike ballot is set to be open from Monday 5 December to Monday 30 January.

If a national strike were to take place, it would be the first national strike since pension action between 2013 and 2015 (which did not include control), and the first on pay since 2002-2003, the FBU says.

Matt Wrack, Fire Brigades Union general secretary, said staff have been left with no option but to vote on strike action:

This is an historic ballot for firefighters and control staff. We are rarely driven to these lengths.

Nobody wants to be in this position. But after years of derisory pay increases and a pay offer that is well below inflation firefighters’ and control staff’s living standards are in peril.

Wrack added it is “utterly disgraceful” to call people “key workers” and then only offer them a real terms pay cut.

Last week we told employers that unless we received an improved pay offer we would formally give notice of a strike ballot.

We have now done that. It’s #FairPayorFireStrike.

— Fire Brigades Union (@fbunational) November 29, 2022

Strike news 1): The UK’s Transport Secretary has made it clear his role is to “facilitate and support” a deal in the long-running rail dispute, rather than get involved in negotiations.

In a letter to the Rail, Maritime and Transport union (RMT), following a letter last week, Mark Harper said the industrial dispute on the railways was bad for workers, businesses and customers.

“We both want a long-term sustainable railway that provides both great service and rewarding jobs.

“Every day’s industrial action makes that harder to deliver.”

Following last week’s talks, RMT general secretary Mick Lynch said it wasn’t clear who had the authority to negotiate a pay settlement that would end the dispute.

Despite that, Harper is still keeping to the sidelines, saying his role is to “facilitate and support, not negotiate”.

“Negotiations will continue between trade unions and employers, but I can see scope for agreement.”

Andy Sparrow’s Politics Live blog has all the details:

People have been tapping their flexible savings accounts – perhaps to cover rising living costs – today’s statistics from the Bank of England show.

Myron Jobson, senior personal finance analyst at interactive investor, has dug into the data and explains:

There was a significant uptick in the amount of cash deposited in fixed term accounts which typically offer a more attractive savings rate with a trade-off of not being able to access your cash without penalty until the end of a specified period.

“But this is offset by outflows to the tune of £4.8 billion from ‘sight deposit’ accounts, flexible savings accounts allowing savers to make withdrawals without giving notice. This suggests that more and more people are being forced to raid easily accessible savings to help tide them over amid the cost-of-living crisis.

The drop in UK mortgage approvals last month is the prelude to a house price correction next year, predicts Sam Miley, senior economist at the CEBR thinktank:

The impacts of tighter monetary policy are also starting to show in the housing market, given that both mortgage approvals and net mortgage lending showed stark falls in October.

Cebr expects this trend to continue and to culminate in a house price correction in 2023.”

Germany’s economy minister vows to defend industry

Over in Berlin, Germany’s economy minister has insisted that the government will defend its industrial sector, as it is hit by a slowing economy and soaring energy prices.

Robert Habeck told an industry conference that Germany will not abandon its status as an industrial nation, saying:

“Anyone who believes that we will let Germany as a location for industry go to ruin has not done the math with German industry.

His comments follow concerns that industrial jobs could move overseas, if Germany falls into recession.

Germany’s ambassador to the UK, meanwhile, is concerned that trade between the two countries has waned steadily since the Brexit referendum, with Britain dropping out of Germany’s top 10 trading partners.

UK 🇬🇧 is Germany’s third export market, but we are concerned that trade between 🇬🇧🇩🇪 has continuously declined since the Brexit referendum.

Britain has traditionally been Germany’s fifth largest trading partner. In 2022 UK 🇬🇧 will drop out of the list of the TOP 10 (blue line) pic.twitter.com/llyyM1IJAj

— Miguel Berger (@GermanAmbUK) November 29, 2022

Quilter: UK housing market is weakening

The UK housing market is on the brink of a significant dip, if not a crash, warns Karen Noye, mortgage expert at Quilter:

The latest figures reveal that mortgage approvals for house purchases fell to 59,000 in October, down from 66,000 in September.

“This latest fall suggests demand is beginning to come out of the market, and this may come at a time where more people are starting to consider putting their properties up for sale as a result of unaffordable mortgage and heating costs.

The cost of living crisis could further weaken the markest, Noye adds:

As we move further into the winter and the temperature drops, increased energy bills alongside greatly increased mortgage payments may result in more and more people being unable to afford to stay in their current homes.

If this is the case – and the level of demand continues to decrease – we will likely see a subsequent reduction in house prices and a switch from the seller’s market seen in recent years to a buyer’s market.

The Bank of England’s money and credit report also shows the impact of higher interest rates on savers and borrowers.

The “effective” interest rate — the actual interest rate paid — on new UK mortgages increased by 25 basis points to 3.09% in October, as the cost of mortgages rose.

On the other hand, the effective interest rate paid on deposits with banks and building societies rose:

One positive out of higher UK interest-rates is better returns for savers.
Bank of England: The effective interest rate paid on individuals’ new time deposits with banks and building societies rose to 3.26% in October, from 2.49% in September.

— Shaun Richards (@notayesmansecon) November 29, 2022

Sizewell C nuclear plant confirmed with £700m public stake

EDF's Sizewell B nuclear power station.
EDF’s Sizewell B nuclear power station. Photograph: Chris Radburn/AFP/Getty Images

The UK government has confirmed the new Sizewell C nuclear power plant in Suffolk will go ahead, backing the scheme with a £700m stake.

Under the plan, Britain will become a 50% shareholder in the Sizewell C nuclear project under a deal with its owner EDF.

This will allow them to buy out a Chinese backer, China General Nuclear (CGN), and (ministers hope) attract new investment to the project.

The £700m stake is the first state backing of a UK nuclear project in over 30 years

Ministers said the move, first announced in Jeremy Hunt’s autumn statement, would create 10,000 highly skilled jobs, provide reliable low-carbon power to the equivalent of 6m homes for more than 50 years and would help secure UK energy security.

The government also said it would set up an arm’s-length body, Great British Nuclear, which would develop a pipeline of nuclear projects beyond Sizewell C.

Her’s the full story:

Higher interest rates also chilled the UK housing market last month, pushing down mortgage applications.

The Bank of England’s base rate is now 3%, up from 0.1% a year ago – and expected to hit 4.5% by next summer.

Ashley Webb of Capital Economics, which expects a 12% peak-to-trough fall in house prices, predicts the slowdown will worsen:

Overall, with high inflation and further rate hikes (from 3.00% now to 4.50%) set to squeeze households’ finances further and reduce the demand for credit, we think housing market activity will fall sharply from here and real GDP will decline by 2% during a recession.

The value of mortgage lending within the UK has also fallen, to its lowest level in nearly a year.

Net borrowing of mortgage debt by individuals decreased from £5.9bn to below £4.0bn in october, the lowest reading since November 2021.

The sharp drop in UK mortgage approvals last month is the latest sign that the housing market, and the wider economy, is slowing.

Karim Haji, UK head of financial services at KPMG, says:

It’s not hugely surprising, being a combination of the higher rates attached to products on the market, which have made them less affordable for many, and caution among consumers about taking on large new financial commitments in such a gloomy environment.

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