"Mortgage approvals showed positive signs of recovery towards the end of last year, however, the market is by no means back to full strength"
- Jonathan Samuels - Octane Capital
The analysis of Bank of England mortgage approvals data comes from specialist property lending experts, Octane Capital, who analysed mortgage approvals since the market started to show signs of improvement towards the end of last year.
The research shows that overall mortgage approvals rose at an average rate of 7.7% per month between October and December 2023.
However, in the remortgage space, there’s been a surge of 14.7% per month, compared to a modest rise of 4.6% for home purchases. Other lending, including second charges, increased by 7.7% each month.
While approvals have risen across the board, they still have plenty of room for recovery after falling by -19.6% in August 2023, followed by a further reduction of -8.2% in September.
Approvals are also well down compared to early 2022 when they regularly topped 130,000 per month. To put that into context, in September 2023 there were just over 70,000.
Competition on rates behind rising remortgage activity
The markets grew more optimistic after the UK’s inflation rate fell to 3.9% in November, lower than was forecast - and closer to the Bank of England’s 2% target. This led some economists to argue that the Bank was more likely to lower the base rate in 2024 than raise it.
As a result, towards the end of 2023 swap rates dropped, which provided lenders with cheaper funding and therefore enabled them to drop their mortgage rates. It’s no wonder therefore that more homeowners decided to remortgage.
Mortgage rate war to continue?
The inflation rate unexpectedly inched back up to 4.0% in December - so it’s unclear how much of a push there’s going to be for cheaper mortgage rates in the near future.
In fact, one worry is the strong remortgage activity of late 2023 could be followed by some weak months of approvals.
If mortgage rates don’t continue to come down more homeowners will be inclined to wait and see until their current mortgage fully expires before remortgaging, especially if they think rates are likely to cheapen up down the line.
CEO of Octane Capital, Jonathan Samuels, commented: “Mortgage approvals showed positive signs of recovery towards the end of last year, however, the market is by no means back to full strength.
“Much of this increase has been driven by remortgage activity from existing homeowners keen to lock in a new deal while rates have dropped and the number of people taking out loans to fund new home purchases remains sluggish.
“With inflation showing a mixed picture it could take a long while for the Bank of England to cut the base rate this year, which could result in the market treading water in terms of activity for a good few months yet.”
