Mortgage approvals for house purchases increased to 62,600 in February, up from 60,200 in January, according to Bank of England statistics, though the figure remains below the six-month average of 63,500.
The data reflects market conditions before the escalation of conflict in the Middle East, which has since affected borrowing costs and market sentiment. Remortgage approvals also increased to 41,200 from 38,500 in the previous month.
Lending and interest rates
Net borrowing rose to £4.8 billion from £4.2 billion, above the previous six-month average of £4.5 billion. The effective interest rate on newly drawn mortgages increased marginally to 4.10% from 4.09%, whilst the rate on the outstanding stock of mortgages rose to 3.95% from 3.90%.
Nathan Emerson, CEO of Propertymark, noted that the figures suggest improving affordability and lender confidence were translating into buyer activity. However, he warned that escalating geopolitical tensions are likely to feed through into inflationary pressures and base rate expectations, which could dampen borrowing conditions.
Market outlook uncertain
Jason Tebb, President of OnTheMarket, said approvals increased as buyers and sellers moved past Budget uncertainty. He acknowledged that last year’s rate reductions had a positive impact on activity, though expectations of further reductions have been put on hold amid inflation concerns.
Jeremy Leaf, a north London estate agent and former RICS residential chairman, described mortgage approvals as a reliable indicator of housing market activity. He noted that whilst needs-driven buyers remain active, overall numbers have dipped following recent geopolitical events. The situation echoes broader declines in buyer enquiries reported across the UK market.
Tomer Aboody, Director at MT Finance, suggested government intervention could help support activity, potentially through stamp duty reform. Mark Harris, CEO at SPF Private Clients, noted that remortgaging numbers increased, suggesting borrowers coming off low rates are shopping around rather than staying with existing lenders.
Rising costs ahead
Simon Gammon, Managing Partner at Knight Frank Finance, said borrowing costs have risen sharply since February. The cheapest fixed rates are now around 4.5%, up from approximately 3.5% in February, with further repricing underway. He warned that leading fixed rates could settle closer to 5% in the near term, representing a significant squeeze on borrowers. This trend aligns with recent reports of soaring buy-to-let borrowing costs across the sector.
Gammon added that borrowers are rushing to lock in deals before rates move higher, which risks overwhelming lenders and prompting further repricing, creating a feedback loop that adds upward pressure on rates.
Conclusion
The February data shows modest growth in mortgage approvals before geopolitical events altered market conditions. With borrowing costs rising and interest rate cut expectations postponed, industry professionals anticipate a more challenging environment for buyers and sellers in the coming months. The housing market’s resilience will be tested as economic uncertainty continues to affect confidence and affordability.