UK mortgage approvals hit 18-month high in March, says Bank of England

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UK mortgage approvals hit their highest for 18 months in March, according to official figures that suggest the property market is continuing to recover despite recent rises in quoted rates.

Net mortgage approvals rose to 61,300 last month from 60,500 in February, the Bank of England said on Tuesday.

Although slightly below the 61,500 forecast by economists in a Reuters poll, the figure was the highest since September 2022 and marked the sixth consecutive monthly increase.

Mortgage approvals fell to a low of 39,800 in January 2023, after higher interest rates hit demand. They are now closer to the 2016-19 monthly average of 66,000, signalling a normalisation in the market despite a steady rise in home loan costs over recent months. 

Swap rates, on which mortgage pricing is based, have risen in response to markets reassessing how soon they expect the BoE to start cutting interest rates from a 16-year high of 5.25 per cent on the back of disappointing inflation data.

“Given the recent increases in mortgage rates, it was comforting to see mortgage approvals rise in March,” said Anthony Codling, analyst at RBC Capital Markets. “The UK housing market is slowly recovering even in the face of stubborn economic, mortgage rate headwinds, and election date uncertainty.”

In March, the average two-year quoted mortgage with a 60 per cent loan to value increased to 4.81 per cent from 4.62 per cent in February but remained well below its recent peak of 6.22 per cent in July 2023, BoE data showed.

Several lenders, including NatWest and HSBC, increased rates on a range of mortgage products last week. TSB, Nationwide, NatWest and Santander have announced rises this week.

Aaron Strutt, director at broker Trinity Financial, said that while the increases were “not huge, they are still enough to noticeably put up monthly repayments”.

“For the moment the cheapest rates are just under 4.4 per cent, which is not bad but higher than many borrowers are willing to pay,” he added.

The BoE said the “effective” interest rate — the actual interest paid, which lags behind quoted rates by a couple of months — on new mortgages fell by 0.17 percentage points to 4.73 per cent in March, the lowest since July 2023.

The BoE figures also showed the amount of money in the economy, known as M4ex, increased by £12.1bn in March, the highest flow since October 2022.

The M4ex money supply includes notes and coins in circulation with the public, together with all sterling deposits held with UK banks and building societies by the rest of the private sector.

Meanwhile, credit borrowing increased by £1.6bn in March, up from £1.4bn in February, while businesses raised £10.2bn of finance, the largest amount of net finance raised since May 2020.

Ashley Webb, economist at research company Capital Economics, said the central bank’s data provided “further evidence that the drag from high interest rates is starting to fade and supports our view that the economy rebounded in Q1” after entering a technical recession at the end of 2023.