The number of mortgage approvals being made to home buyers fell in December to the lowest level since May 2020, according to Bank of England figures.
Some 35,600 mortgages were approved for house purchase, down from 46,200 in November, the Bank’s Money and Credit report said.
This was the fourth monthly decrease in a row for mortgage approvals for house purchases.
Housing market activity ground down to low levels in the early days of the coronavirus pandemic but this was then followed by a burst in activity.
Mortgage rates jumped in the autumn of 2022 following the mini-budget. Bank of England base rate hikes have also been pushing up borrowing costs.
The “effective” interest rate – the rate typically paid on newly-drawn mortgages – increased to 3.67% in December 2022, in the largest monthly jump since December 2021, when the Bank of England base rate started to creep up.
Approvals for re-mortgaging, which only capture re-mortgaging with a different lender, fell to 26,100 in December, marking the lowest monthly total since January 2013.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “House purchase mortgage approvals continued to fall sharply in December, despite more lenders returning to the market after they ran scared in the immediate aftermath of the mini-budget.”
He added that the slump in re-mortgaging approvals in December “suggests that the proportion of borrowers staying with their existing lender has shot up; note that the (Bank of England’s) figures do not include internal refinancing.
“This makes sense, given that some borrowers might fail affordability tests with new lenders, while lenders are also in a position to give their existing customers a better deal, as they can more accurately assess their credit quality.”
“January has been much more active, which will show in next month’s data. It is clear now that many buyers merely postponed house moves rather than cancelled them altogether.”
He said some recent easing in mortgage rates “has been the primary driver in the change of sentiment”.
Looking at non-mortgage loans, the annual growth rate for all consumer credit increased from 7.0% in November to 7.2% in December – the highest level since 2019.
Within this, the annual growth rate of credit card borrowing rose from 12.2% in November to 12.4% in December.
Households collectively deposited £4.6 billion into bank, building society and NS&I accounts in December, down from £5.6 billion in November.
This was below the average monthly net flow of £5.5 billion going into accounts during the previous six months.
Non-financial UK businesses borrowed £1.9 billion of bank and building society loans in December, on net, compared with £1.5 billion of net borrowing in November.
“We can expect to see the knock-on impact of that on the economy in the next two months, with a slowdown in consumer spending.”
He added: “The reality for everyone is that real disposable incomes have dropped, and after a period of two years of high volatility in expenditure, rates and inflation, we can expect to see personal balance sheets going through a period of consolidation over the next two quarters.”
Alistair McQueen, head of savings and retirement at Aviva, said: “In the face of waves of gloomy economic news, households are taking proactive actions to take control of their finances – by pausing before making a house purchase; avoiding a race towards short-term debt and, continuing to save – albeit December’s level of savings is down, this is typical in the month before Christmas.”
He added: “Households cannot control the economic climate, but they can control their own budgets. Today’s data indicates that they are seeking to do this, as they try to navigate stormy economic waters.”