UK mortgage approvals increased to a six-month high as the average rate dropped for the first time since November 2021 as lenders compete for business.

The latest data from the Bank of England shows that net mortgage approvals increased to 50,500 in December from 49,300 in November.

Net approvals for remortgaging rose to 30,800 in December from 25,700 a month earlier.

It comes as the cost of borrowing falls, with Bank of England figures showing the “effective” interest rate – the actual interest paid – on newly drawn mortgages fell by six basis points to 5.28% in December.

Lenders have engaged in a mortgage price war in which they have cut the costs of new fixed-rate deals to try to remain at the top of the best-deal tables.

Markets expect prices to stabilise in 2024 as financial markets bet on the BoE cutting interest rates from the middle of the year.

Borrowers repaid, on net, £800m worth of mortgage debt in December, compared to net zero in November.

The figures also showed that consumer borrowing came in at £1.2bn in December, declining from the previous month’s £2.1bn. The annual consumer credit growth decreased slightly compared to November, landing at 8.5% in December.

Industry reaction: 

Guy Gittins, Foxtons CEO, said: “A third consecutive monthly increase in mortgage approvals demonstrates that market momentum continues to build and not even the usual lull of the Christmas period was enough to deter buyers from pushing forward with their plans to purchase.

“As a result, the market has started 2024 very much on the front foot and pent up demand means buyers are acting with a greater degree of urgency than we’ve seen in recent times, encouraged by sub 4% mortgage opportunities and keen to secure them while they are available.

“While the hope is that interest rates will start to fall this year, the expectation is that the Bank of England will keep them held at 5.25% this week.

“So for those who are looking to purchase, the best course of action is to instruct an experienced, specialised broker to ensure you secure the best rates currently available and don’t pay over the odds in the long run.”

Jason Tebb, president of OnTheMarket, commented: “With approvals for house purchases, an indicator of future borrowing, continuing to edge upwards in December, the pause in interest rate hikes is boosting market stability and buyer confidence. The end-of-year dip in confidence and activity which we might have expected failed to materialise.

“The new year has got off to a promising start with an increase in buyer enquiries on the back of the reduction in mortgage rates. With the Bank of England expected to start cutting base rate at some point this year, buyers are increasingly confident as to what they can commit to and afford.

“With property prices off their peak, that’s no bad thing for the overall health of the market as transaction numbers are more important. Sensible pricing should encourage buyers who may have been sitting on their hands to get on with their move and take advantage of more competitive mortgage rates.”

Simon Gammon, managing partner, Knight Frank Finance, said: “Mortgage approvals for house purchase accelerated between November and December and posted a 42% gain compared to December last year. Falling mortgage rates have transformed sentiment among borrowers and we’ll see a busy spring market this year.

“High street lenders appear to have called a temporary truce in their price war after economic indicators published in January pushed back the likely date of the Bank of England’s first rate cut. A lot will depend on the language used by the Bank when it publishes its next decision on Thursday. A hold is overwhelmingly likely, but any dovish overtones could prompt lenders to issue another round of cuts to their fixed rate products.”

Jonathan Samuels, CEO of Octane Capital, commented: “Homebuyers are continuing to grow in confidence, buoyed by a reduction in mortgage rates in recent months. However, these mortgage rate reductions were based on previous expectations across the swap market that the Bank of England will reduce the base rate this week.

These expectations have been changing in recent weeks and we’ve seen swap rates start to creep up based on the likelihood that the base rate will remain at 5.25% for the immediate future.

As a result, mortgage approvals have climbed, but not at the rate forecast, and we anticipate that should mortgage rates start to climb again in February it could further dampen the enthusiasm that has been shown by buyers in recent months.”

Jason Ferrando, founder and CEO of easyMoney, commented: “Mortgage approvals climbed for the third consecutive time in December, suggesting that despite interest rates remaining at 5.25%, buyers are keen to make their move in 2024.

However, they are advised to tread with caution while doing so, as the cost of borrowing remains high and there’s no guarantee that this is going to change any time soon.

Over borrowing now with the expectation of lower rates further down the line could find them in financial difficulty when they do come to renew their mortgage terms.”

Tom Bill, head of UK residential research at Knight Frank, said: “While the mini-Budget sent buyers and sellers into early Christmas hibernation in 2022, falling inflation and mortgage rates stirred the housing market into life during the final three months of last year. Mortgage approvals were a quarter higher in December than the previous year, demonstrating how falling bank rate expectations have improved the landscape for the UK housing market.

“Financial markets expect four cuts of 0.25% this year and irrespective of whether they happen or not, mortgage lenders are pricing fixed-rate deals based on that assumption. However, for context, the number of approvals in December was 27% below the five-year average and as demand strengthens, there is a risk that political volatility may eventually cause some hesitation.”

Akhil Mair, director at Our Mortgage Broker, added: “The surge in mortgage enquiries and subsequent applications since early December has been truly remarkable. There’s been a dynamic blend of first-time buyers eagerly stepping onto the ladder and seasoned home movers seeking new horizons.”