Number of mortgage approvals made to home buyers highest since 2007

The number of mortgage approvals made to home buyers jumped to its highest levels since 2007 in August, the Bank of England said.

Some 84,700 approvals for house purchase were recorded, marking the highest number since October 2007, according to the Bank’s money and credit report.

The Bank said the jump only partially offsets weakness seen between March and June.

In total, there have been 418,000 approvals in 2020, compared with 524,000 in the same period in 2019.

The housing market was effectively closed for business earlier on this year, when social distancing measures due to Covid-19 made the process of home buying and selling very difficult.

The subsequent easing of measures, combined with a stamp duty holiday announced in July, have boosted the market.

NAEA (National Association of Estate Agents) Propertymark reported this week that about one in eight homes sold in August went for more than the original asking price – marking the highest proportion in nearly five years.

Looking to the months ahead, some experts have predicted the prospect of rising unemployment and a dwindling number of low deposit mortgages as lenders shy away from “riskier” lending will dampen the market.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said a recent increase in mortgage rates, particularly for low deposit loans, “will make purchases unaffordable for many first-time buyers”.

He continued: “The outlook for a further drop in employment also will weigh on the housing market, though with home ownership having narrowed to a wealthier segment of the population over the last decade, job losses won’t have as devastating an impact on the market as they did in 2008.”

The report also showed that interest rates on overdrafts jumped in August.

The “effective” rate – the actual interest rate paid – on interest-charging overdrafts rose by 4.2 percentage points to 19.00% in August.

This is the highest rate since similar records started in 2016 and compares to a rate of 10.32% in March 2020, before new rules on overdraft pricing came into effect.

Under the new Financial Conduct Authority (FCA) rules, overdraft providers have to charge one single rate of interest rather than adding on other charges.

Before the coronavirus pandemic, many providers announced new rates which were around double what many people with an authorised overdraft had previously been on.

The FCA has introduced guidance for firms to help overdraft customers who have been facing temporary financial difficulties due to the coronavirus pandemic. As part of this, borrowers have been offered a temporary £500 interest-free overdraft buffer.

The report also said typical rates on new personal loans increased a little in August, to 4.71%.

The typical cost of credit card borrowing was broadly unchanged at 17.95% in August.

Households’ deposits increased by £5.2 billion in August. That was lower than the increase of £6.5 billion in July and below the average of £17.2 billion between March and June.

The returns savers were getting tumbled further in August. The effective interest rate on new deposits fell to a new low of 0.50%, the Bank said.

Mr Tombs said the Bank’s report seems to reflect households returning to spending most of their income, following a period of “enforced” saving during the full lockdown in the second quarter of 2020.

He added: “High unemployment, however, likely will prompt households to maintain a large savings buffer over the next year, ensuring that spending does not exceed households’ diminished incomes over the coming quarters.”

Alistair McQueen, head of savings and retirement at Aviva, said: “A large proportion of households are likely to shift to precautionary saving in anticipation of further economic turmoil caused by the reintroduction of stricter local lockdown measures. This will dent consumer spending, which will curb the UK’s economic recovery.”