Mortgage approvals in the UK fell for the third consecutive month in September, according to data from the Bank of England, signalling continued weakness in the housing market as interest rates remain elevated.
Home loan approvals dropped to 53,400 last month, down from 54,800 in August and below the six-month average of approximately 58,800, according to the Bank’s Money and Credit release.
Mortgage borrowing decreased to £3.9 billion from £4.2 billion in August, falling below the six-month average of £4.9 billion. The effective interest rate on new mortgages increased marginally to 4.63% from 4.60%, whilst the rate on existing mortgages rose slightly from 4% to 4.03%.
Remortgage activity increases
In contrast to new purchase approvals, remortgaging activity with different lenders increased to 42,600 in September, up from 34,000 the previous month, suggesting homeowners are seeking better deals as existing fixed-rate terms expire.
Simon Gammon, Managing Partner at Knight Frank Finance, noted that housing market activity continued to soften through September as mortgage rates climbed. “Inflation rose to 3.5% during the month, while expectations of a prolonged period of elevated energy prices due to the conflict in the Middle East pushed swap rates higher, prompting lenders to reprice their mortgage products,” he said.
The recent Budget announcement has provided some stability, with government borrowing costs edging lower following the Chancellor’s speech, removing one source of uncertainty for the housing market. Budget responses reveal housing affordability pressures remain a concern for market participants.
Market momentum weakens
Anthony Codling, MD Equity Research at RBC Capital Markets, highlighted that approvals fell 2.5% month-on-month and 19.4% year-on-year. “This marks the third consecutive monthly decline, an unwelcome hat-trick, and takes approvals to their lowest level since December 2023,” he said.
The current run-rate sits 10.8% below the five-year average and 16.9% below the ten-year average. The value of approvals fell even faster, down 4.9% month-on-month and 17.7% year-on-year to £13.7 billion.
John Phillips, Chief Executive at Just Mortgages and Spicerhaart, attributed the slowdown to rate volatility and buyers responding to what he described as “global economic storms”. He noted that whilst there has been a bounce in buyer registrations and valuation requests in September and into October, the market remains dominated by those needing to move rather than choosing to.
Outlook
The decline in mortgage approvals reflects broader challenges facing the property market, including elevated interest rates and economic uncertainty. With remortgage activity rising sharply, many homeowners appear to be reassessing their financing options. Market observers suggest that the conclusion of the Budget may release some pent-up demand, though compliance pressures and affordability constraints continue to weigh on market sentiment.
