"The slowdown in demand for housing as rising interest rates continues to squeeze the finances of many has contributed to a further fall in mortgage lending activity."
Net residential mortgage borrowing decreased from £4.3 billion in November to £3.2 billion in December, according to the latest Money and Credit data from the Bank of England.
Gross lending fell from £25.1 billion in November to £23.3 billion in December.
Mortgage approvals for house purchases decreased to 35,600 in December from 46,200 in November, the lowest since May 2020. This marked the fourth consecutive monthly decrease in mortgage approvals.
If the onset of the Covid-19 pandemic and period immediately thereafter is excluded, house purchase approvals are at the lowest level since January 2009 (32,400).
Approvals for remortgaging with a different lender fell to 26,100 in December from 32,600 in November, the lowest level since January 2013.
The interest rate paid on newly drawn mortgages increased by 32 basis points to 3.67% in December, the largest monthly increase since December 2021, when Bank Rate increases began.
Karen Noye, mortgage expert at Quilter, said: “The latest Money and Credit statistics from the Bank of England show the housing market is now in the midst of a significant slowdown. This morning’s data show that mortgage approvals for house purchases dropped to 35,600 in December, down from 46,200 in November and the lowest level since May 2020.
“Over the past few months, we have witnessed a sizeable fall in the level of demand in the market. While mortgage rates have dipped somewhat since the highs seen towards the end of last year, monthly costs remain far higher than many people had become accustomed to in recent years. When coupled with rising energy bills – particularly now the winter has truly set in and people are becoming more reliant on their heating - we may be entering a time where more people begin to consider putting their properties up for sale in favour of a cheaper home. House prices have started to fall in recent months, and should the level of demand continue to decrease at the same time more people put their homes on the market, we will likely see this trend continue and a switch from the seller’s market to a buyer’s market could materialise.
“The Bank of England base rate currently sits at 3.5% and is widely expected to increase to 4% at Thursday’s Monetary Policy Committee meeting. Further rate rises have already largely been priced in when it comes to mortgage rates, but a further base rate rise will likely mean a fall in mortgage rates will be a while off yet and could see buying a first home or moving home pushed out of reach for many."
Steve Seal, CEO of Bluestone Mortgages, commented: “The effects of the mini-budget continue to reverberate. This combined with the slowdown in demand for housing as rising interest rates continues to squeeze the finances of many has contributed to a further fall in mortgage lending activity. Although lenders have resumed lending since the extreme swap rate volatility, there are still strong headwinds lying ahead in the current inflationary environment, which will no doubt impact the homeownership dreams of many across the country."
Tomer Aboody, director of MT Finance, added: "With consecutive months of lower mortgage approvals, we are seeing the impact of higher interest rates on mortgage borrower sentiment, not only on purchases but refinancing. Borrowers may well be waiting to see how the next few months pan out with regards to further hikes in interest rates before deciding to settle on a fixed or variable product.
"With the housing market set to get busier as we head into spring, buyers will either have to manage their dream home expectations or come to terms with higher rates. We expect to see an uptick in purchases, especially if the government gets involved in terms of assistance with stamp duty payments or the banks show more flexibility when it comes to approving mortgages."
