Remortgaging Drives Rate-Seeking Homeowners
The recent surge in mortgage lending can be attributed to a notable increase in remortgage activity, as indicated by the latest analysis of Bank of England data. Between October and December 2023, overall mortgage approvals saw an average monthly increase of 7.7%, marking a recovery from the declines observed during the summer months.
However, a closer examination reveals that remortgage approvals experienced a more substantial rise, averaging 14.7% per month during this period, in contrast to the modest 4.6% increase in mortgages for home purchases. This analysis, conducted by specialist lenders Octane Capital, is based on Bank of England mortgage approval data.
Despite this recent uptick in activity, mortgage approvals still lag significantly behind previous years' figures. For instance, in early 2022, approvals consistently exceeded 130,000 per month, whereas September recorded just over 70,000 approvals.
Mortgage approvals in the UK rose at an average rate of 7.7% per month between October and December 2023.
The resurgence in mortgage activity observed towards the end of last year can be attributed to enhanced competitiveness in pricing. Headline inflation in the UK dropped to 3.9% in November, lower than anticipated, leading to speculation that the Bank of England might lower the base rate in 2024 rather than increase it. Consequently, swap rates declined towards the end of 2023, providing lenders with access to cheaper funding options, enabling them to reduce mortgage rates.
However, Octane Capital CEO Jonathan Samuels cautions that the sustainability of this trend remains uncertain. Inflation unexpectedly rose again in January, prompting several lenders to raise the cost of their fixed-rate mortgages, which could potentially dampen demand.
Samuels emphasises, "While mortgage approvals demonstrated positive signs of recovery towards the end of last year, the market has not fully regained its strength. The surge in activity has largely been driven by remortgage activity among existing homeowners seeking to secure new deals at lower rates, while the number of new home purchase loans remains sluggish. Given the mixed outlook on inflation, it may take some time for the Bank of England to lower the base rate this year, potentially resulting in stagnant market activity for several months to come."
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