The UK mortgage approvals declined to an eight-month low in September as rising interest rates damped housing market activity, data from the Bank of England showed Monday. Furthermore, data on credit to businesses and consumers suggested that the economy is heading into a mild recession.
Net mortgage approvals for house purchases fell to 43,300 in September from 45,400 in August. This was the lowest since January 2023. The expected level was 45,000.
Net borrowing of mortgage debt decreased to -GBP 0.9 billion from GBP 1.1 billion in August. Borrowing was the lowest since April 2023.
Data showed that the actual interest paid on newly drawn mortgages grew 19 basis points to 5.01 percent in September.
The <a href=https://www.rttnews.com/3391957/bank-of-england-pauses-rate-hike-unexpectedly-on-softening-inflation.aspx target=_blank >BoE </a>had paused its policy tightening in September after raising the interest rate at each and every rate-setting meeting since December 2021. At 5.25 percent, the interest rate was the highest since early 2008.
Net consumer credit borrowing fell to GBP 1.4 billion in September from GBP 1.7 billion in August. At 8.0 percent, the annual growth in consumer credit rose to the highest since November 2018.
Further, data showed that businesses borrowed a net GBP 5.2 billion from banks and building societies, following net zero in August.
Within this, net repayments by small and medium-sized non-financial businesses rose to GBP 0.8 billion in September from GBP 0.7 billion in August. By contrast, net borrowing by large non-financial businesses increased to GBP 6.0 billion from GBP 0.7 billion a month ago.
Capital Economics’ economist Ashley Webb said higher interest rates are gradually working and supports the assessment that the Bank has finished hiking interest rates. The economist said the bank will not cut rates until late next year suggesting that bank lending will remain weak over the next few quarters.
Data today showed that M4 money supply dropped 1.1 percent on month in September. This was the biggest fall since November 2022.The annual fall in M4 deepened to 3.9 percent from 0.8 percent.