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Demand for mortgages dropped 75% at end of 2022, Bank of England says

Bank of England data shows a significant drop in demand for mortgages to buy a home

Demand for new mortgages fell by 75% at the end of 2022 according to the BoE, as homeowners were hit by rising interest rates and rising costs of living

  • Mortgage rates peaked in October last year, but have slowly come down
  • Mortgages for buying a home have fallen dramatically in the last three months of 2022
  • There has also been an increase in demand for credit cards and loans

Demand for mortgages to buy a home fell sharply in the last three months of last year as rising mortgage rates and the cost of living crisis impacted the market.

New mortgages for home purchases fell 75% from the previous three months, according to Bank of England data.

Lenders expect the decline in demand to continue in the first quarter of this year, although the landing will be softer than at the end of 2022, the BoE said.

Bank of England data shows a significant drop in demand for mortgages to buy a home

Bank of England data shows a significant drop in demand for mortgages to buy a home

Although demand for remortgaging also fell, the decline was much less pronounced at 17%.

Simon Gammon, managing partner of Knight Frank Finance, said: “Mortgage rates could improve, but lenders clearly expect housing market activity to subside over the coming weeks.

Rates, although falling, are unlikely to fall further and now is a good time to act

“Demand for mortgages for home purchases has fallen dramatically in the last three months of the year and is expected to decline further in the first three months of 2022, although lenders expect the decline is moderate.

“The data shows how the market has stabilized following the mini-budget, but the headwinds will persist throughout the year, dragging down demand for mortgages.

“Borrowers can clearly see that conditions are better than they were just a few weeks ago and that rates, although falling, are not expected to ease much more and now is the good time to act.”

“We are now entering a ‘new normal’ for mortgage rates, with top five-year fixed products just under 4.5 percent.”

Mortgage rates rose rapidly at the end of last year, thanks to uncertain economic conditions in the UK and the fallout from September’s disastrous mini-budget, but are now slowly falling.

Interest on the average five-year fixed mortgage fell well below 6% to 5.42% as more lenders cut rates.

Two-year fixed-rate transactions now sit at an average of 5.6%, according to Moneyfacts.

But the best deals available right now are heading towards 4%, with rates as low as 4.04% over a 10-year term for those with large deposits.

Demand for credit cards surged towards the end of the year as the life crisis intensified

Demand for credit cards surged towards the end of the year as the life crisis intensified

Credit card applications rise as budgets tighten

Along with falling demand for mortgages, credit card loan applications rose 17% from October to December last year, underscoring households’ growing reliance on credit as prices continue to rise to weigh on the finances.

And the availability of credit has also fallen, down 36% at the end of 2022 and expected to drop another 50% in the first quarter of 2023.

This is partly due to uncertain economic conditions and reduced risk appetite among lenders.

Cost of life

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “We are already struggling with debts such as credit cards and loans, and the number of defaults has increased over the last three months of the year.

“Unfortunately as we go through the rest of the winter there is a good chance it will get even worse.

“Rising rates are playing their part, but the sheer scale of people’s debt also poses huge challenges. Those who borrowed to make ends meet as prices rose are running out of options.

“Over time these debts increase and people find it difficult to find additional loans, they are going to be more and more vulnerable. And although debt seems to be the answer to our short-term problems, it itself creates huge problems.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed rate contract is coming to an end or because they have agreed to buy a home should explore their options as soon as possible.

This is Money’s best mortgage rate calculator, powered by L&C, that can show you deals that match your mortgage and property value.

What if I need to remortgage?

Borrowers should compare rates and speak to a mortgage broker and be prepared to act to get a rate.

Anyone with a fixed-rate deal ending in the next six to nine months should consider how much it would cost them to remortgage now — and consider entering into a new deal.

Most mortgage transactions allow fees to be added to the loan and they are then only charged at the time of subscription. By doing so, borrowers can secure a rate without paying costly arrangement fees.

What if I buy a house?

Those who have agreed to buy a home should also aim to get quotes as soon as possible, so they know exactly what their monthly payments will be.

Homebuyers should be wary of overstretching and prepare for the possibility of home prices falling from their current high levels, due to higher mortgage rates limiting people’s ability to borrow.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.

You can use our best mortgage rate calculator to view offers that match your home’s value, mortgage size, term, and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the loan mortgage that’s right for you.

> Check out the best fixed rate mortgages you could apply for

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