Data released recently by the Bank of England has shown that mortgage approval rate in the UK has jumped significantly in the period from March to April 2023. A good sign that stability will return to the property market, if it hasn’t already. The Bank of England, the body in charge of regulating financial stability for the country, regularly releases reports around finances in the country.
In recent months, the Bank of England has been in the news a lot as they attempt to tackle the economic crisis that the country is currently in and reduce inflationary pressures. To do this, they have regularly increased the base rate that they charge financial institutions and this has in turn led to a rise in mortgage interest rates, a more stringent approach to lending from lenders, and a subsequent drop in mortgages actually being approved by banks and building societies.
Why Exactly Have Mortgage Approval Rates Dropped?
In the face of an economic struggle, banks and building societies want to limit the risk in their landing of money as much as possible. That means that they will be clamping down on lending to borrowers who are at a higher risk of struggling financially and lending to more people who have higher incomes, lower debts, and are more likely to keep up with loan repayments. Unfortunately, for many people this means that mortgages that would have been easily approved 12 months ago are being rejected and priced out by lenders.
Lenders have done this by tightening their mortgage affordability criteria. Most lenders will determine how much they are willing to lend a potential borrower by a) how much they earn and b) how much debt they have/will have compared to how much they earn. Generally a mortgage lender will lend you around 4.5 – 5X your annual income as a mortgage. However, many lenders have started to max out their lending capacity to 4 or 4.45X income, which means higher earners will get higher loans and lower earners will be offered smaller loans, if any at all.
A lot of lenders have also insisted on adding inflated monthly credit commitments to mortgage affordability checks, under the assumption that things like energy bills will increase. A lot of lenders have added assumed energy bill and utility bill expenses onto their affordability checks, even if the actual figures are nowhere near. That also means that higher earners are likely to not be impacted too much by these inflated figures, whereas lower earners will be offered massively reduced loans or flat out declined on an affordability basis.
Mortgage Approvals Have Increased
After months of mortgage approvals declining, the Bank of England has announced that in March mortgage approvals actually increased, hitting a total of 55,000 compared to 44,100 in February 2023. An almost 22% increase in one month. A significant increase, I think we can all agree. The bank makes the point of highlighting that this is the first increase in 5 months of recording mortgage approval rates. The total value of these approvals also shows a very healthy monetary increase at £11.4 billion, up from £9.6 billion in February 2023.
The data released from the bank also shows that the amount of remortgages in the UK also increased to 32,177 approvals in March 2023, compared to 28,176 in February. In total these were valued at £6.8 billion in March and £5.7 billion in February.
Speak To a Mortgage Advisor
If you are in the market for a mortgage and want to know more about how to get a mortgage approval, give our team at Oportfolio a call today. We are expert mortgage advisors based in London, helping clients across the country. We are here to help.