The chaos in the mortgage market that followed Kwasi Kwarteng’s now infamous mini-budget led to a 10% fall in the number of mortgage approvals during October.
According to the latest figures from the Bank of England, the number of mortgages approved by lenders slumped from 66,000 in September to 59,000 last month – the lowest monthly total for mortgage approvals since June 2020.
The figures cover the period immediately after Kwarteng delivered the 23 September mini-budget that sent the markets into turmoil, forcing the Bank of England to start buying long-dated UK government bonds, in an attempt to stabilise the market.
More than 40% of the mortgage market disappeared almost overnight, leaving many homebuyers without a firm loan offer no longer able to afford the home they had intended to buy, and forcing them to pull out.
Calm was restored by the reversal of most of the mini-budget, but homebuyers are still facing much higher interest costs.
The interest rate on new mortgages jumped by 0.25% to 3.09% in October while net borrowing of mortgage debt by individuals decreased from £5.9bn to £4.0bn in October, the bank said.
Simon Gammon, a managing partner at Knight Frank Finance, said this lending data shows activity “slowing markedly”.
“Monthly mortgage approvals for the purchase of homes are running below long-run averages, which may be a sign of things to come. The mini-budget weighed heavily on sentiment and it’s now clear many buyers have opted to postpone acting at least until the other side of Christmas,” he said.
On Monday the property website Zoopla reported demand had weakened, prompting homeowners to accept offers below the asking price. The company is predicting house prices will fall by about 5% next year.
New sales have dropped by up to 50% in previous hotspots and areas where higher mortgage rates will hit buying power hardest – in southern England, the east Midlands and Wales, it said.
Zoopla expects mortgage rates to fall to about 5% at the turn of the year, from about 6% now for two-year and five-year fixed deals.
The Bank of England data also reveals October saw a boom in savers pushing their money into fixed-rate savings products.
Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, said: “There was a fixed rate savings frenzy in October, as £11.3bn piled into these accounts – a record high. This was more than eight times as much as went into fixed-rate savings in September, and reflects a growing sense that we may be getting near the top of the fixed-rate savings market. This may be almost as good as it gets for fixed rates,” she said.