UK mortgage approvals surged to their highest level in over two years in October, driven by falling interest rates that energized the housing market, even as households exercised caution in borrowing and saving ahead of the Autumn Budget.
The Bank of England reported 68,303 mortgage approvals for house purchases in October, up from 66,115 in September, marking the highest figure since August 2022. This exceeded expectations, which forecast a drop to 65,000. The effective interest rate for newly drawn mortgages fell by 15 basis points to 4.61%, the lowest since May 2023.
Approvals for remortgaging also climbed for the third consecutive month, reaching 31,400 in October. Additionally, net borrowing through mortgage debt increased by £0.9 billion to £3.4 billion, reflecting a net lending growth rate of 1.1%, continuing the upward trend observed since April. Gross lending also rose to £20.2 billion in October, compared to £19.5 billion in the prior month.
In contrast, net consumer credit declined to £1.1 billion in October from £1.2 billion in September. While net borrowing through credit cards increased to £0.5 billion, borrowing through other forms of consumer credit fell to £0.6 billion. Net borrowing by businesses saw a sharp rise to £3.9 billion, up from £0.1 billion in September.
Economist Ashley Webb from Capital Economics observed that concerns over the Budget have made households more cautious with borrowing and saving. Weak activity data for November suggested that tax increases announced in the Autumn Budget further restrained consumer spending. Webb warned that without a swift recovery in consumer confidence, the UK economy might experience slower growth than anticipated in the fourth quarter.
Conclusion
October saw a resurgence in UK mortgage approvals, driven by declining interest rates, but concerns over the Autumn Budget tempered consumer borrowing and spending. While housing market activity remains robust, lingering caution among consumers may hinder broader economic growth.
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