Octane Capital analysed historic mortgage approval figures stretching back to January 2008, looking at the average monthly change in these mortgage approval levels in the three months that followed a decision to either cut or increase the base rate.
The analysis suggests that the surprise rate cut at the start of the month could bring a welcome boost to mortgage approval levels. In fact, even a hold on the base rate has helped improve market stability, with the number of mortgage approvals climbing from 44,424 in September 2023 when it was first held at 5.25%, to exceed the 60,000 monthly threshold in February of this year and largely remaining there ever since.
The analysis by Octane Capital shows that perhaps the largest boost to market sentiment as a result of an interest rate cut came during Covid, with mortgage approvals increasing at an average rate of 118.4% in the three months following the April 2020 base rate cut to 0.10%.
However, even after removing the influence of the Covid property market boom, Octane Capital found that since February 2008, mortgage approval levels climbed by an average of 2.62% over the three months that followed an interest rate cut.
In contrast, in the three months that followed an interest rate increase, mortgage approval levels fell at an average monthly rate of 1.43%.
CEO of Octane Capital, Jonathan Samuels, commented:
“It stands to reason that a reduction in interest rates will help cultivate a greater degree of mortgage market activity and the uplift felt as a result of last month’s rate cut could be even more substantial than historic trends suggest.
"Home buyers have had to endure one of the most sustained periods of affordability pressure in modern times and this has caused a great deal of pent up demand to build across the property market.
"There’s no doubt that a hold on interest rates has helped to steady this ship, but now that the base rate is starting to reduce, we expect this pressure to uncoil at pace which should drive further house price growth over the remainder of the year.”
