Press release

29 Nov 2022 London, GB

Mortgage approvals fell in October – EY ITEM Club comments

Martin Beck, Chief Economic Advisor to EY ITEM Club, provides comments on the latest public finance news.

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  • One of the repercussions of the mini-Budget was a fall in UK mortgage approvals in October. The mortgage market has since calmed, but higher mortgage rates and a troubled economy imply a weak outlook for housing market activity.

  • Meanwhile, there were mixed signs on the ability, or willingness, of households to support spending by dissaving. Net unsecured lending picked up in October, but only modestly. And while bank deposits grew by less than the previous month, the rise remained above pre-Covid levels.  

Martin Beck, chief economic advisor to the EY ITEM Club, says: “The turmoil in financial markets that followed late September's mini-Budget, was accompanied by an increase in mortgage rates (the typical quoted rate rose by almost 2ppts in October), the withdrawal of many mortgage products, and widespread warnings of a housing market crash. In October, approvals for new mortgages fell to 58,977 from 65,967 the previous month. October's decline left approvals at the lowest level since June 2013, excluding the pandemic period.

“Net mortgage lending of £4bn was also down from September's £5.9bn, however this was driven by a large rise in repayments. As the mortgage market has seen a degree of calm restored over the last month or so - with rates retreating from recent highs and the return of some mortgage products - the EY ITEM Club expects a recovery in activity in the short-term.  

“However, mortgages are still significantly more expensive than only a few months ago, which EY ITEM Club thinks is unlikely to change, given the prospect of further Bank of England rate increases. In addition, the housing market faces plenty of other headwinds, including falling real household incomes and very stretched affordability. A period of weakness in mortgage lending, approvals, and property prices therefore looks baked in.

“October was calmer on the unsecured lending side. Consumers borrowed a net £0.8bn, which was £0.2bn higher than in September. Nevertheless, this was still below both the previous six-month average and pre-Covid levels. Meanwhile, signs of caution were also evident from a £6.2bn rise in cash held by households in bank accounts. While the increase was less marked than in September, it remained above the £3.9bn per month averaged in pre-pandemic 2018 and 2019.”