UK housing and consumer lending is falling as prices rise | So Good News

UK mortgage approvals fell last month and consumer lending eased sharply as households became more cautious about raising prices and borrowing money, Bank of England data showed on Monday.

The central bank said approvals for home purchases totaled 66,800 in September, down from 74,440 the previous month, while mortgage lending remained steady at $6.1bn.

The figures show the housing market was on a downward spiral before Liz Truss’s “mini” Budget on September 23 sparked a market frenzy that saw borrowers write off their mortgages.

Meanwhile people borrowed £700mn in consumer credit, up from £1.2bn in August and the lowest level since December 2021. At the same time, households added £8.9bn to their savings – double the figure before the pandemic – meaning many people are making savings to help them get through the difficult year ahead.

Interest rates remained higher than analysts expected, reflecting a rush by homebuyers to lock in affordable mortgages before interest rates rise.

Daniel Mahoney, an economist at Handelsbanken, said that the figures show that the strength of credit approval so far “has not been due to the strength of the housing market, but more to do with households wanting to get ahead of the rapid rise in interest rates”.

The BoE said that the interest rate paid on newly issued loans rose by 29 to 2.84 percent in September. This was the biggest monthly increase since December 2021, when the Monetary Policy Committee began raising rates as inflation became more visible.

This “effective” interest rate is the average for the month; By the end of September, most mortgage lenders had pulled properties from the market or were charging 6 percent.

Although some lenders have started to cut rates due to fears of a UK recession, mortgage rates are likely to be higher than they have been recently. Analysts expect the MPC to propose a 0.75 percent increase in the base rate at its next vote on Thursday.

The decline in consumer credit was driven entirely by lower credit card lending, which fell sharply from a net $700mn in August to $100mn in September, the BoE said.

Thomas Pugh, economist at accountancy firm RSM, said this was “further evidence that the UK is already in trouble”, with consumers turning to non-essential purchases to cut spending even as prices for essential goods rise.

Gabriella Dickens, economist at Pantheon Macroeconomics, said rising rates could indicate homeowners are planning to “pay their mortgages when they come back”, or extend them to pay off their mortgages in the short term. at the high cost of food and energy.

But he also pointed out that rising savings rates masked greater inequality. Figures published last week by the Office for National Statistics show that 30 per cent of households are now unable to pay the unexpected but essential £850, up from 25 per cent at the end of last year.