The number of new mortgage commitments has fallen to the lowest levels since the Covid pandemic as speculation the Bank of England’s will keep on hiking interest rates rattles the market.
As the central bank raised interest rates for the 12th consecutive time during the quarter, in a bid to cool inflation, the number of people committing to a mortgage was in the first quarter of the year was 16.1 per cent less than the previous quarter. It was also 40.7 per cent less than a year earlier, at £48.9bn – fresh data from the Band of England shows.
The value of gross mortgage advances has also slumped to £58.8bn, the lowest level recorded since the second quarter of 2020.
The figures come as financial markets believe that borrowing costs could reach a fresh high of 5.75 per cent, up more than a percentage point from their current level of 4.5 per cent – the highest level since the eve of the financial crash.
The rate hikes has made it increasingly difficulty for prospective buyers to secure mortgages as many lenders are increasing interest rates on fixed mortgages.
Yesterday, analysis by the Centre for Economics and Business Research (CEBR) has warned that the BoE rates rise will see mortgage rates average 5.1 per cent in 2023 and 4.6 per cent in 2024 – meaning homeowners nationally looking to negotiate fixed-term deals face a £8.7bn increase in payments.
“Lenders committed to advance less than £50bn in mortgages during the first quarter, the lowest level since the height of the pandemic,” Hina Bhudia, partner, Knight Frank Finance, said.
“The proportion of loans with rates less than two per cent above the base rate climbed to its highest level since 2008. Clearly the lenders are all doing less business than they would like to be, and have shown willingness to absorb some volatility in order to remain competitive.
She added: “That has its limits, as we’re seeing at the moment. Lenders continue to pull product ranges in order to maintain service levels, which is exacerbating the pace at which mortgage rates are rising. We hope that will start to plateau soon, but a lot will depend on the latest CPI reading, due out next week.”