House prices: Surge in mortgage approvals fuels UK property boom

House prices: Experts have also highlighted that people are looking to move house before interest rates go up further
House prices: Experts have highlighted that people are looking to move house before interest rates go up further. Photo: Richard Baker/In Pictures via Getty (Richard Baker via Getty Images)

UK mortgage approvals for house purchases rose to 74,000 in January, above the 12-month pre-pandemic average up to February 2020 of 66,700, new data has shown.

According to the Bank of England (BoE) on Tuesday, Brits borrowed £5.9bn ($7.9bn) in mortgage debt during the month, up from £4bn in December and above the pre-pandemic average of £4.3bn.

The surge came amid a buoyant housing market fuelled by the ongoing demand-supply mismatch for property, and despite Omicron clouding the economic outlook.

The average asking price increased by 2.3% — or £7,785 — in February to a record £348,804, according to data from property site Rightmove (RMV.L).

Experts have also highlighted that people are looking to move house before interest rates go up further.

“We’re now seeing large numbers seeking to move before rates rise further. The limiting factor on purchasing activity during the weeks ahead will be the shortage of properties to purchase,” Simon Gammon, managing partner at Knight Frank Finance, said.

“The Bank of England’s remortgaging data doesn’t capture deals when borrowers stick with their current lender, but we are seeing significant numbers of borrowers looking to remortgage ahead of another potential rate rise in March.

“There is little doubt that mortgage rates will continue to rise over the course of the year, what’s unclear is how fast. The outlook is much more uncertain amid the escalating conflict in Ukraine.”

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It came as the BoE data also revealed that UK consumers scaled back their borrowing in January as households brace for a cost-of-living crisis.

Borrowing using credit cards, personal loans and overdraft totalled around £600m during the month, down from £800m in December and below the average in the second half of last year.

The effective rate on new personal loans fell by six basis points, to 6.21% in January, while the effective interest rate paid on individuals’ new time deposits with banks and building societies rose by 31 basis points to 0.67%.

Meanwhile, large businesses' borrowing from banks rose to £1.7bn in January, whilst small and medium sized businesses repaid £800m.

Private non-financial companies (PNFCs) raised £600m in net finance from capital markets.

Read more: What Ukraine invasion means for consumer prices in the UK

Myron Jobson, senior personal finance analyst at Interactive Investor, said: “Borrowing on credit cards and personal loans has not returned to pre-pandemic levels. The pandemic and the cost-of-living crisis have made many people revaluate their spending and savings habits.

“People understand that the current financial pinch is only going to get worse this year, with inflation expected to hit 7%. For many, taking out more debt would add to the already weighty pressure on their budget.

“It is a difficult period for personal finances which will be hard to forget and, for some, could permanently change their spending and borrowing habits.

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