The Bank of England reported UK mortgage approvals declined in August in comparison to last year. It was the lowest level in half a year and the blame is likely due to higher interest rates. The cost of borrowing has not only caused affordability issues for first-time buyers, but a change in house shopping habits. Where during the height of the pandemic there was a race for space as work for home caused a need for more room and lockdowns made homes with more outdoor green space the pandemic dream house, it was all more possible due to historically low interest rates. Now borrowing is much more expensive, and because even starter homes can be too pricey, first-time home buyers are becoming DIY homeowners and showing stronger demand for overlooked lower priced fixer upper homes.

The Bank’s Monetary Policy Committee (MPC) had increased the standard base interest rate during fourteen consecutive meetings since December 2021. In less than two years, the base rate has gone from almost zero at 0.1% to the current 5.25%. The rate was voted to remain steady in the September meeting and the next MPC meeting will not be until November.

The Bank reported mortgage approvals for house purchases in August declined to 45,400 from the 49,500 reported in July and August was one third lower than reported in August 2022.

The number of house sales in August was reported by the Bank to be 16% lower than the same month last year at only 87,010 homes sold.

There was a slight increase over July at 1%, and that was credited to cash buyers in the housing market who are not impacted by higher interest rate borrowing.

In response to the report, estate agency Knight Frank remarked the housing market would perform in 2023 less favorably than had been forecasted due to higher interest rates and the decline in demand from buyers. Earlier predictions were for a decline in the market of 5% and a further fall in the market in 2024 of 4%. However, the now drearier outlook is for a decline of 7%.

Knight Frank, an independent real estate consultancy, stated, “The cost of borrowing has risen after an exceptional period that followed the global financial crisis, when rates hovered close to zero for more than a decade. It’s a return to normality where the journey rather than the destination has been the problem. Anyone buying, selling, or remortgaging a property in the last 18 months has faced market volatility caused by the mini-budget and inconsistent inflation data.”

Remortgage demand has remained subdued versus expectations due to higher interest rates. As each MPC meeting approached and the forecast was for another rate hike, it would in the past create a rush to remortgage. However, it didn’t happen this go round, and in some cases, new homeowners were oblivious to the impact the higher rates would have on their budget when their mortgage term ended.

There are thousands that will come to the end of their mortgage term during the holidays, and experts could not be clearer to homeowners that they should consider a remortgage and shop as soon as possible. Recently many lenders reduced their interest rate offers prior to the MPC meeting on the 21 September, even though there was a high expectation for a rate increase versus a majority vote to keep it steady. The same new and cheaper offers could disappear as quickly as they were put on the market. 

Perhaps, it is thought by some experts, home buyers coming into the housing market during the pandemic as new borrowers with their first hard look at becoming homeowners became so used to the historically low rates that resulted of the pandemic that it was thought it was normal. This caused many to overlook the rising rates and the fact that the historic rates were unusual and not at all in the normal range. They therefore expected rates to quickly decline and return to low levels, bringing back the affordability of before.

The rates were increased to combat inflation, and unfortunately inflation is going to be around for months to come. Even when it declines from its now 6.7% closer to or below target rate of 2.0%, rates are likely to remain in place and steady to keep inflation in control.

Rates may be higher than they were this time two years ago and no one expected them to increase so swiftly and steeply in that time period, but lenders are competitive right now and there isn’t another MPC meeting this month with the next scheduled for 2 November. There is time and there are savings to be found in comparison to what the rates would have been had the MPC increased the rate in September as expected. It is certainly a more positive outlook for home buyers to shop now, and even more so for the homeowners coming to the end of their mortgage term in this last quarter of the year. Remortgages are certainly a smart strategy for saving money, and there is money to be saved even if rates don’t resemble what they did in 2021.