Mortgage approvals up as more lenders cut rates

First Direct and the Yorkshire Building Society are the latest big names to announce new reductions for homeowners, as expectations grow that more will soon follow suit.

Mortgage approvals hit their highest level in six months near the end of last year, official data has revealed – as more lenders announce rate cuts.

New figures from the Bank of England (BoE), published on Thursday, show that more than 50,000 loans for home purchases were rubber-stamped in November – the highest number since June 2023 and more than expected.

It comes amid growing optimism that the housing market is gradually recovering from dampened demand last year amid high mortgage rates and cost of living pressures on consumers.

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The average two-year fixed mortgage rate fell to 5.87% on Thursday, the lowest level since June 2023, according to research by Moneyfacts. It said the average five-year fixed deal also dipped to 5.46%.

Several high street names reduced their rates earlier this week, including Halifax and HSBC, which is now offering a five-year deal below 4%.

First Direct, which is a division of HSBC, unveiled its latest reductions of up to 0.98 percentage points on Thursday.

The bank’s new offerings, which will be introduced on Friday, include five and 10-year fixed deals with a rate of 3.99%.

Its head of mortgages Liam O’Hara said: “We are committed to reducing the cost of borrowing where we can for our customers, and we’re very pleased to be starting the year with the introduction of new sub-4% mortgages”.

Yorkshire Building Society also confirmed to Sky News it will soon reduce rates “across its range” and will publish the details next week.

A spokesperson said the society was “taking advantage of recent falls in market rates to continue passing on as much value as possible to borrowers.”

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The BoE’s figures on mortgage approvals came in its monthly Money and Credit report on Thursday.

The report also found borrowing by British consumers hit its highest in nearly seven years in November, growing by a net £2bn. It represents a sharp rise from £1.4bn in October.

The Bank said the increase was mainly due to a spike in credit card spending.

A total of 50,067 mortgages – net of cancellations – were approved the same month, higher than a median forecast of 48,500 in a Reuters poll and the most since June 2023 when over 54,000 new home loans were recorded.

Approvals for remortgaging with a different lender increased from 24,000 in October to 27,000 in November.

Alice Haine, an analyst at Bestinvest, said the figures were “a reflection of easing mortgage rates and softening house prices enabling more people to meet lenders’ affordability criteria.”

She added: “With new mortgage approvals on the rise and signs that borrowing conditions are set to improve over the course of 2024, mortgage lending may start to creep up over the next few months as more buyers return to the market.

“How rapidly this happens will depend on how soon and how quickly the BoE cuts interest rates.”

Ashley Webb, from Capital Economics, said the Bank’s report suggested “demand for new mortgage lending has stabilised and will probably rise in the coming months”.

However, he cautioned: “But the interest rate paid by existing mortgage holders will continue to rise as households roll off cheaper fixed rate deals and refinance at higher rates than they are used to.”

The BoE is expected to cut interest rates later this year following recent easing in the rate of inflation.

Interest rates are currently at a 15-year-high of 5.25% after being held steady three times in a row.