Mini-budget crushes mortgage demand: Bank of England

Mortgage approvals for new purchases dropped significantly to 66,800 – from 74,400 in August. The effective interest rate on mortgages rose 29 basis points to 2.84% in September- up from 2.55% a month earlier. It’s the largest monthly increase since rates started rising last December.

The Bank of England reported on effective interest rates for September: Effective interest rates – September 2022 | Bank of England

It also issued its money and credit report for September: Money and Credit – September 2022 | Bank of England

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown said: “Bank of England figures capture the initial impact as the mini-budget collided with the mortgage market, but we’re likely to see the shockwaves ripple through it in the months to come too. Despite the fact the mini-budget hit within a week of the end of the month, it was long enough to see the biggest jump in mortgage rates in 2022 so far, and a 10%  drop in the number of mortgages being approved for the coming months.

“We already know from various house price indices that demand fell immediately, but this is the first clear overall picture of the mortgage market in September – and it doesn’t look pretty.  A 10% drop in the number of mortgages approved for future purchases is a significant overnight change. We can expect this to feed into house sales and price data in the coming months.

“We also cut back on new credit card borrowing. This may owe much to the fact that people who have been borrowing their way through the cost-of-living crisis can feel themselves running out of road. They may also be alarmed at the risk of rising interest rates making their debts more expensive. There’s every chance that, as life gets tougher, people are prepared to face really impossible spending choices as they realise they have no other options left.

“Meanwhile, for those who are able to keep on top of rising prices, there has been a boom in saving. The combined flow into banks, building societies and NS&I was £8.9 billion – well above the six-month average of £5.3 billion a month. Some of this new-found enthusiasm for saving is thanks to higher savings rates. That’s certainly one reason why we’ve seen more people prepared to fix their savings for a higher rate of interest. However, some will be due to worries about the problems that are yet to come. The vast majority of this money is going into accounts not paying any interest, so the driver for these savers has more to do with building a buffer for even tougher times to come than cashing in on savings rates.”

Other statistics from the report

  • We borrowed £0.7 billion more in consumer credit, including £0.1 billion on credit cards. This is down from an additional £1.2 billion in August and is driven by lower credit card borrowing.
  • The annual growth in consumer credit rose slightly to 7.2% – the highest rate since March 2019, and card borrowing was down again from  13.2% to 12.1%.
  • The average credit card rate rose to 18.96% – above pre-pandemic levels – and the average overdraft rate increased to 20.83% – from 20.46% in August.
  • We saved another £8.1 billion plus £0.8 billion in NS&I. The amount going into banks and building societies is up from £3.2 billion the previous month and is the biggest monthly rise since June 2021. The amount going into NS&I fell during the month from £1.1 billion.
  • £3.4 billion of this savings was in fixed rate accounts – up from £1.1 billion in August. Meanwhile, easy access accounts paying interest received £3 billion, and non-interest-paying easy access accounts received £4.1 billion.
  • Average new fixed savings rates rose from 1.94% to 2.49% in September – the largest monthly increase since December.
  • Average easy access rates rose 17 basis points to 0.87%.