Mortgage approvals reach highest level in two years

The mortgage market is showing encouraging signs as approvals increased month-on-month.

The number of net mortgage approvals for house purchases rose from 62,500 in July to 64,900 in August, according to the latest Money and Credit report from the Bank of England.

This is the highest this figure has been since August 2022, when there were 72,000 approvals.

After falling for five consecutive months, the number of remortgage approvals (not including those who remortgage with their existing lender) also rose from 25,200 in July to 27,200 in August.

This increased activity in the mortgage market comes as many lenders have been reducing rates recently, both before and after the Bank of England cut the base rate to 5% on 1 August.

“The latest mortgage approval figures showcase some welcome growth across the board for house purchases and remortgages,” commented Caitlyn Eastell, spokesperson at Moneyfactscompare.co.uk.

Although she highlighted that lending activity usually slows in the winter months, she pointed out that “predictions for another cut to interest rates before the year is up means it would not be surprising for this to have a further impact on the number of approvals”.

Rising house prices

Even though falling mortgage rates have been good news for first-time buyers, as well as those wanting to remortgage or move home, house prices remain high.

After they dropped slightly in the month to August, house prices saw a monthly increase of 0.7% in September to stand at £266,094, according to Nationwide BS (which uses data from its own mortgage lending).

And, with a year-on-year increase of 3.2%, house prices saw their fastest rate of annual growth since November 2022.

“Income growth has continued to outstrip house price growth in recent months while borrowing costs have edged lower amid expectations that the Bank of England will continue to lower interest rates in the coming quarters,” commented Robert Gardner, Nationwide's Chief Economist.

“These trends have helped to improve affordability for prospective buyers and underpinned a modest increase in activity and house prices, though both remain subdued by historic standards,” he explained.

Choosing a mortgage deal

Mortgage rates are still relatively high compared to their pre-2022 levels, but the recent rate cuts may have encouraged borrowers to put their mortgage plans into action.

However, it’s important to think carefully and consider all your options before choosing a mortgage deal.

For example, some borrowers may not want to lock in a long-term deal in case rates fall significantly and they end up paying more than they needed to.

On the other hand, others may prefer to lock in a five-year mortgage (or longer) so their payments are guaranteed and won’t be affected in case rates started to rise again.

Meanwhile, some borrowers, such as those coming to the end of their fixed deal, may choose to go onto their lender’s Standard Variable Rate (SVR) and wait for rates to fall further before locking into a new fixed-rate deal. However, this can be a risky option as you’re likely to pay significantly more on an SVR and there’s no guarantee that rates will continue to drop.

With so many factors to consider, it can be useful to discuss your options with a mortgage broker as they will be able to offer advice tailored to your individual situation.

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