Britons are increasingly putting plans to buy or move on hold and hide money in fixed-term savings as the cost of living crisis deepens, new data has revealed.
Net mortgage borrowing by individuals fell from £5.9bn in September to £4bn in October, according to the latest figures from the Bank of England.
Mortgage approvals for home purchases also fell more than 10% to 59,000 in October from 66,000 in September, suggesting the appetite for home buying dissipates in an environment of rising mortgage rates.
The figures show the effects of the mini-budget released by the Liz Truss government on September 23, which spooked markets with unfunded tax cuts – which have now largely been reversed – and sent mortgage rates soaring.
Appetite decreases? The number of mortgages approved in October fell more than 10% from September as the cost of borrowing to buy a home rose
Andrew Codling, managing director of real estate platform, Twindig, said: ‘Mortgage approvals fell in October as the mini-budget wreaked havoc on the housing market, taking mortgage approvals to an all time high. low level since June 2020.
“This is clearly not a good sign as mortgage approvals are, in our view, the best indicator of the housing market. Mortgage approvals today lead to housing transactions in the future.
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The slowdown in mortgage demand appears to be related to rising interest rates.
The “effective” interest rate – the actual interest rate paid – on new mortgages rose 25 basis points to 3.09% in October, according to the Bank of England.
However, many homebuyers will have faced the prospect of much higher rates in recent weeks. The average two-year fixed rate mortgage is currently at 6.08%, according to Moneyfacts.
The reason the Bank of England average is lower is that fixed mortgage rates can be agreed up to six months in advance.
Steve Seal, managing director of Bluestone Mortgages, said: “The aftermath of mini-budgeting continues to take its toll, with lending activity falling further.
“As lenders re-enter the mortgage market after extreme volatility in swap rates, strong headwinds are yet to come which will no doubt have a huge impact on the dream of home ownership.”
The prospect of falling house prices may also be holding people back from buying a home right now.
This is a particular concern for first-time buyers, as they often buy with small deposits and are at greater risk of negative equity if the value of their property drops.
Beyond their peak: Mortgage rates have fallen from their October highs in recent weeks
But despite the Bank of England figures, there are at least signs that mortgage rates are down from their recent highs.
Alice Haine, personal finance analyst at investment platform Bestinvest, said: “With the political and financial turmoil easing since Rishi Sunak became Prime Minister following the resignation of Liz Truss on October 21, the two-year low corrective has now fallen to just over 5 percent.
“With markets reassured on fiscal stability following the autumn statement and given the Bank of England’s bleak recession forecast earlier this month, the Bank is now expected to raise interest rates from the current level of 3% at around 4.25% to 4.5% cent – a slightly more palatable spike than the 6% or more feared after the Kwarteng mini-budget.
“With the number of mortgage products available picking up again, this means banks are once again competing to attract new customers, increasing the chances of new buyers and those looking to refinance getting a better deal. “
Britons are hoarding money in fixed-rate savings
As the appetite for mortgages wanes, Britons who can afford them continue to spend much of their idle money on savings.
Households deposited a further £6.2bn with banks and building societies in October, according to the Bank of England.
Fixed-rate savings seemed to be the flavor of the month, with £11.3billion stashed away in these accounts, up from just £2.9billion in September.
Fixed-rate savings offers typically allow savers to lock in their money for one to five years in exchange for higher rates.
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The influx of money into fixed rate savings, however, was partly offset by the fact that money in easy access savings accounts fell by a total of £4.8bn.
Some of that money may have moved into fixed-rate accounts, but it could also show Britons are dipping into their savings to meet the rising cost of living.
Savings rates have reached the highest levels seen in more than a decade.
The typical interest rate paid to Britons hiding money in new fixed rate accounts with banks and building societies rose to 3.26% in October from 2.49% in September.
The best fixed rate offers broke the 5% mark last month. However, in recent weeks they have receded.
Sarah Coles, senior personal finance analyst at investment platform Hargreaves Lansdown, said: “There was a fixed rate savings frenzy in October as £11.3bn piled up on these accounts – a record.”
“This was more than eight times what was spent on fixed rate savings in September, and reflects the growing sentiment that we are nearing the top of the fixed rate savings market.”
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