Market News

By Tom Rees

(Bloomberg) -- The number of UK mortgages given the green light hit a more than two-year high last month as buyers shrugged off anxiety over tax hikes and persistently elevated interest rates.

Banks and building societies approved 68,300 home loans in October, an increase from 66,100 the previous month, Bank of England data showed on Friday. Economists had expected just 64,500 approvals. 

The last time more mortgages were approved was August 2022, the month before Liz Truss triggered a jump in interest rates during her tumultuous and brief spell as Conservative Prime Minister.

The latest figures suggest the housing market was resilient to fears of rising taxes ahead of the Labour government’s first budget on Oct. 30. In the end, most of the £40 billion ($51 billion) in revenue-raising measures were aimed at businesses rather than directly at consumers.

An easing in mortgage rates over the summer had spurred predictions of a flurry of activity in the housing market in the autumn. However, analysts have warned that any recovery could be slowed by the chancellor’s budget.

Her fiscal plans have led traders to expect fewer interest rate cuts from the Bank of England over fears it will keep inflation higher for longer. While increasing tax, Reeves is also spending and borrowing more.

“October was a busier month as buyers and sellers sought to squeeze deals through ahead of the budget, but sentiment has since taken a turn for the worst,” said Simon Gammon, managing partner at Knight Frank Finance. “Most lenders hiked mortgage rates in the fortnight following the budget.”

Caution

While the BOE has cut rates twice this year already, it has signaled a cautious approach to further reductions, partly because it is unsure how businesses will react to a hefty increase in payroll taxes.

It has caused mortgage rates to edge up after falling from around 6% earlier this year. Moneyfacts data showed that the average two-year fixed mortgage rate was at 5.52% on Thursday, up from 5.39% on the eve of the budget.

The first sign of the budget’s impact on the property market may be seen in house price data for November from Nationwide Building Society on Monday.

Mortgage approvals are an indicator of demand in the housing market and the resilient performance suggests stronger transactions in the coming months. Buyers may also decide to rush through deals in order to purchase property before the threshold at which they pay stamp duty is lowered next April.

Savings

The BOE also said Friday that consumer credit rose £1.1 billion in October, slightly lower than the £1.2 billion increase the previous month.

“The slump in consumer confidence ahead of the budget appears to have caused households to increase precautionary savings in October,” said Ashley Webb, economist at Capital Economics.

(Adds context throughout.)