Mortgage approvals in the UK reach their highest levels in 17 months, according to the Bank of England

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UK mortgage approvals beat expectations in February to reach a 17-month high, according to official data reflecting a decline in borrowing costs since the middle of last year.

The Bank of England said on Tuesday that net mortgage approvals for home purchases rose to 60,400 in February from 56,100 in January. The number exceeded economists' expectations in a Reuters poll of 56,500 and was the highest since September 2022.

The “effective” interest rate – the effective interest rate paid – on newly drawn mortgages fell by 0.29 percentage point to 4.9 per cent in February, according to the central bank. This was the lowest rate since August 2023.

Separate figures published by Nationwide Bank on Tuesday showed house prices unexpectedly fell by 0.2 per cent month-on-month in March.

But it was 1.6 per cent higher than in March last year, the fastest annual rate of increase since December 2022, and London remained the most expensive part of the UK.

Mortgage approvals and house prices are closely monitored by interest rate setters as timely indicators of the health of the real estate market, which affects the broader economy and is important for monetary policy decisions.

Figures released on Tuesday suggest that the recovery in the housing market is continuing on the back of a decline in mortgage rates from their peak in the summer of 2023.

The decline in most fixed interest rates announced since the second half of last year reflects expectations that the Bank of England will cut interest rates this year from the current 16-year high of 5.25 percent.

Some published mortgage rates have risen since February due to flat servicing inflation, a move reflected in the month-on-month decline recorded by Nationwide in March. But analysts said the real estate market is improving.

“The recovery in housing market activity is taking hold despite an uncertain start to the year for mortgage rates,” said Simon Gammon, managing partner at brokerage Knight Frank Finance.

He added, “The higher-than-expected inflation data in January and February prompted a small number of lenders to raise mortgage interest rates, which negatively affected sentiment, but not enough to kill market momentum.”

Bank of England data on Tuesday also showed further signs of the impact of higher interest rates fading, with cash deposits in household bank accounts rising in February driven by flows into instant access accounts.

“This provides further evidence that households are no longer seeking higher interest rates by tying up their money in fixed-term accounts,” said Ashley Webb, an economist at research firm Capital Economics.

Figures from Nationwide – which put the average cost of a property at £261,142 – were worse than expected. Economists polled by Reuters had expected a rise of 0.3 percent on a monthly basis in March and an annual increase of 2.4 percent.

The average house price for a mortgage provider was £12,600 below its peak in August 2023, reflecting the hit to potential buyers from rising borrowing costs. But it was £45,200 more than in January 2020, before the pandemic, when the “race for space” and historically low interest rates fueled demand.

London was the most expensive area in the UK, with the average house price at £519,505. Prices in the capital rebounded in the first three months of 2024, rising at an annual rate of 1.6 percent, up from a 2.3 percent contraction in the last quarter of 2023.

Northern Ireland was the best-performing region, with house prices rising at an annual rate of 4.6 per cent in the first three months of 2024, according to Nationwide. Northern England and Scotland also recorded strong annual increases of 4.1 per cent and 3.7 per cent respectively.

The worst performing areas were southwest England and East Anglia, where house prices fell by 1.7 per cent and 1.3 per cent.