From data produced by the Bank of England, we can confirm that UK mortgage approvals are on the upward trend after months and months of struggle. In recent months even mortgage affordability, let alone proceeding cases, has been on a decline as the cost of living impacts people, mortgage interest rates remain higher than average, and lenders are reluctant to lend like they once did. However, it seems that the tables have now turned.
UK Mortgage Approvals Are Going Up
The Bank of England announced that mortgage approvals in the UK have gone up signalling that lenders appetite for lending has potentially gone up and borrowers have started to adapt to a more stringent mortgage market. The Bank of England reported that 43,500 mortgages were approved last month in the UK, up from 39,600 in January 2023. The previously forecast figure was expected to be 42,000, so the mortgage market is way ahead of the game.
But, it isn’t all good news as mortgage approvals are still down compared to last year with a way to go to recover. Property transactions are also down and average selling prices of properties are still unstable and are going up and down.
Why Have Mortgage Approvals Gone Down?
Mortgage approvals are recovering and going back up, but why are they down compared to last year? This is a simple yet also in a way complicated. Essentially, this is down to three things. Lender restrictions imposed since the mini-budget damaged the economy, the cost of living crisis, borrower appetite.
Income Multiples
Since interest rates went up at the end of 2022, mortgage lenders have ‘tightened their purse strings’ quite literally. A lack of stability and certainty in the market caused mortgage lenders to lose their appetite for lending and also lose trust in borrowers. The way they see it is that there is far less risk to their own profits and money if they only lend to borrowers who a) have very high income b) have lots of money saved c) do not have any real risk of being unable to pay their mortgage back. This means that lenders who once were willing to do things like lend up to 5.5X income for a mortgage, are now restricting their maximum loans to 4.45 or 5X.
Outstanding Credit Commitments
Lenders are also restricting their lending more based on clients credit commitments. It has always been the case that a mortgage lender will lend you less if you have lots of loans or credit cards, however lenders have started being particularly harsh when borrowers have even the slightest bit of debt outstanding. Many borrowers with car loans, credit card balances, or hire purchases are being offered much less mortgage than they would have a year ago. The simple reason being that lenders do not want to lend money to too many clients who already have debt that they need to pay back.
Also, things like utility bills are making up more of the affordability assessment, whereas they weren’t previously as much of a big deal. The cost of living crisis in the UK has meant that gas, electricity, water, etc has gone up significantly for most people. Because of this, lenders are often including over inflated monthly commitments in their affordability tests. Causing lots of applications to fall short.
Deposits
Again it has always been the case that the more deposit you can contribute to a purchase yourself, the better interest rates you get, no surprise here. However, since the economy has started struggling, lenders have been giving borrowers with larger deposits much more preferential treatment. Whereas a 90 or 95% loan to value mortgage was commonplace with fairly competitive rates, lenders now encourage borrowers with larger deposits by introducing lower rates for these loans. One lender recently released products aimed at borrowers with 45% deposit that are more competitive than other products they offer with lower deposits.
What Can I Do To Ensure My Application Goes Through Smoothly?
Speak to a mortgage advisor. Don’t go it alone. We can’t stress this enough. Mortgage borrowers who try and go directly to a bank for their loan are much more likely to be declined because they don’t have a thorough understanding of what the lenders want to see and what they need in order for an application to go through smoothly.
If you secure the help of an experienced mortgage professional like us at Oportfolio, we will be able to help you to approach the right lender, handle all of the affordability stage for you, supply the lender with the correct documents and evidence that they need and chase your mortgage offer and completion through right to the end. Don’t wait, give our team a call today to see how we can help you.
