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
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
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.
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.
