UK mortgage approvals fell in January to their lowest level in more than two years, according to new data from the Bank of England.
Around 39,600 mortgages were approved for residential property purchase in January, down from 40,500 in December, marking the lowest monthly total since May 2020. January data also marked the fifth consecutive monthly drop in approvals.
The data also shows total mortgage borrowing fell 19% in January to £2.5bn.
At the same time, lending increased from £23bn in December to £23.3bn, while the “effective” interest rate – the actual interest rate typically paid – on newly-drawn mortgages increased to 3.88% in January, up from 1.58% in the same month last year.
Approvals for remortgaging fell to 25,400 in January, down from 26,000 in December and the lowest level recorded since July 2012.
Net mortgage lending to individuals decreased from £3.1bn to £2.5bn in January.
Tom Bill, head of UK residential research at Knight Frank, said: “The UK housing market is suffering a prolonged hangover from the mini-Budget and the mortgage market turmoil that marked the final quarter of 2022.
“Activity, since Christmas has been solid as buyers and sellers adjust to higher rates and January’s figures, are not the prelude to a crash. House prices are 20% higher than they were before the pandemic and we expect around half of this to unwind over the next two years as buyers revise down their budgets.”
Jason Tebb, CEO of OnTheMarket, commented: “January saw a decline in net borrowing of mortgage debt by individuals, coupled with a decrease in approvals for house purchases, an indicator of future borrowing, compared with December.
“This is not wholly surprising, coming off the back of uncertainty around the mini-Budget fallout, rising interest rates and the cost of living, as well as the market returning to more normal seasonal trends, with January tending to be a relatively quiet month.
“Looking forward, consumers may feel less confident in the short term but even in challenging markets, there are those who need to move. With Nationwide’s latest data suggesting a fall in prices, would-be buyers may well be encouraged if they think prices are becoming more achievable. We’ve said it for a while now but sellers need to price realistically in order to do well in this market.”