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Average UK mortgage interest rates have fallen for the first time in more than two years, according to data from the Bank of England, suggesting that the burden on homeowners is easing as borrowing costs fall.
The data released on Tuesday added to signs of stability in the real estate market as mortgage approvals rose for the third time in a row to a six-month high in December.
The 'effective' interest rate – the actual interest paid – on newly drawn home loans fell by 6 basis points to 5.28 per cent in December, the first fall since November 2021, Bank of England data also showed.
“There are green shoots of recovery in the housing market and perhaps the broader economy,” said Ashley Webb, an economist at consultancy Capital Economics.
Net mortgage approvals for home purchases rose from 49,300 in November to 50,500 last month – the highest reading since June.
Meanwhile, net remortgage approvals also rose from 25,700 in November to 30,800 in December, a further sign of a return to activity in the property market.
Mortgage approvals provide an early indicator of the health of the housing market. The latest figures will be closely watched by policymakers ahead of the Bank of England's next monetary policy meeting on Thursday.
Interest rates on popular fixed mortgage deals have been falling since the summer, following expectations that the central bank will cut interest rates later this year. Markets expect the Bank of England to keep interest rates at 5.25 percent on Thursday, but will begin cutting interest rates in June.
Interest rates on two-year fixed mortgages with 60 percent loan-to-value fell to 4.9 percent in December from 5.1 percent in November, well below the peak of 6.2 percent in July. Interest rates on popular five-year deals have also fallen since the summer, Bank of England data showed.
This data comes on the heels of other indicators of improving prospects for the UK property market. House prices rose at the end of last year, according to mortgage providers Halifax and Nationwide. Meanwhile, separate data from the Royal Institution of Chartered Surveyors showed that surveyors are becoming more optimistic.
While mortgage approvals remained below the pre-pandemic level of 66,000 per month, “the additional decline in mortgage rates in January means they will continue to recover,” according to Webb.
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The Bank of England also reported that net consumer credit borrowing by individuals fell in the same period, from £2.1 billion in November to £1.2 billion in December.
Economists have different views on what drives the credit trend. For Thomas Willadek, chief European economist at T. Rowe Price, this reflects rising real wages “as rising household disposable income means consumers need to rely less on credit for their consumption.”
However, Thomas Pugh, an economist at tax audit and consultancy RSM UK, said the significant decline in consumer credit was in line with the fall in retail sales reported by the Office for National Statistics earlier in the month, adding to evidence that the economy had “slipped into recession.” “. At the end of the year.”
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