There was a monthly drop of 9% in mortgage approvals in October, down from 66,000 in September. With the six monthly average also standing at 66,000, October’s approvals are substantially lower than the recent trend.

The report also found that net borrowing by individuals was down significantly at £4bn, compared with £5.9bn the preceding month. This is the lowest level seen since November 2021, when it stood at £3.8bn.

Remortgages and interest rates on the rise

Approvals for remortgaging however increased slightly month on month, from 49,500 in September to 51,300. This is also comfortably above the six month average of 47,300.

The effective interest rate on newly drawn mortgages rose by 25 basis points in October to 3.09%, while the rate on the outstanding stock of mortgages moved to 2.29%, an increase of five basis points.

A market on the edge

Karen Noye, mortgage expert at Quilter, said that the data showed a housing market on the brink of a significant dip, if not an outright crash.

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She noted that demand was coming out of the market at a time when some may be considering selling their homes as a result of unaffordable mortgage and heating costs.

She said: “As we move further into the winter and the temperature drops, increased energy bills alongside greatly increased mortgage payments may result in more and more people being unable to afford to stay in their current homes.

“If this is the case – and the level of demand continues to decrease – we will likely see a subsequent reduction in house prices and a switch from the seller’s market seen in recent years to a buyer’s market.”

Alarm bells for the property industry

The fall in demand triggered by Kwasi Kwarteng’s disastrous mini Budget could set ‘alarm bells’ ringing for the property markets, according to Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.

She said: “Mortgages approved for purchases in the coming months plummeted 11% in a month and 21% from August – before the announcement. Falling demand for mortgages reflects the Zoopla findings that buyer interest also plummeted 44% following Kwasi Kwarteng’s controversial announcements, and rings alarm bells for the property market.

“So far, November figures show house prices levelling out, but this could be the tipping point. On the flip side, predictions of house price drops over the coming year are increasingly in single figures, reflecting optimism that the recession may not be as long or as deep as had been feared.”

‘Short-term pain for long-term gain’

Alice Haine, personal finance analyst at at DIY investment platform Bestinvest, noted that while the drop in mortgage borrowing in October was “to be expected”, there was now more stability in the market, with rates coming down and more products returning to the market. Although she also highlighted the fact that borrowers aren’t out of the woods yet and that first-time buyers could be hit particularly hard.

She said: “With the number of mortgage products available recovering, it means banks are competing for new customers once again – increasing the chances for new buyers and those looking to refinance of securing a better deal.

“The slightly more upbeat outlook means less of a payment headache for those who already own properties when their current fixed-rate deals expire, but it does not remove all the pain for the property market. The rise in borrowing costs we have already seen means first-time buyers cannot afford as much as they could a year ago with sellers increasingly settling below the asking price and house prices expected to contract about 5% next year, according to Zoopla.

“For those with mortgage deals about to expire who haven’t locked in a new product, there are more options available now. Variable-rate mortgages, for example, are cheaper than fixed-rate deals, however they do track interest rates making it likely they will go up in the months ahead. However, once rates hit their peak next spring, they are expected to come down, so it could result in short-term pain for long-term gain.”