Mortgage approvals tumble in October

Mortgage approvals tumbled by more than expected in October, official data showed on Tuesday, as the fallout from the mini-budget weighed heavily.

According to the Bank of England, there were 59,000 mortgage approvals for house purchases in October, down from 66,000 in September and below consensus expectations of around 60,000.

Net borrowing of mortgage debt by individuals was also lower, falling to £4bn from £5.9bn a month earlier.

The effective interest rate paid on newly-drawn mortgages, meanwhile, increased by 25 basis points to 3.09%. The effective rate is the actual interest rate paid on mortgages.

Interest rates have jumped to 3% so far this year, the highest since 2008, as the BoE looks to tackle historic levels of inflation.

But the rise in borrowing costs was exacerbated by the government’s ill-received mini-budget on 23 September. The prospect of large, unfunded tax cuts alongside no spending plans or economic forecasts sparked market turmoil, sending mortgage rates sharply higher and leading to the temporary withdrawal of some offers.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The relative modest increase in the effective interest rate…provides false comfort, as this is based on completed housing transactions, relating to mortgages agreed with lenders a few months ago.

"The effective rate on new mortgages likely will soar to between 5.5% and 6.0% at the start of next year."

The BoE money and credit data also showed net consumer credit rose by £0.8bn in October, up from £0.6bn in September. The figure was below both the 2015-2019 average, of £1.3bn, and consensus expectations of £0.9bn.

In contrast, households’ total liquid assets increased £6.4bn, down on September’s £8.9bn but above the average monthly net flow of £5.3bn during the previous six months. Total liquid assets include deposits with banks and building societies as well as cash in National Savings and Investment accounts.

Tombs said: "Households have remained unwilling to draw on savings or take on more debt in order to support their level of real expenditure, casting further doubt over the Office for Budget Responsibility’s view that a sharp fall in households’ saving ratio will ensure the recession is short, and the subsequent recovery is swift."