New figures from the Bank of England show that they dropped to their lowest level since the middle of the pandemic.
Image source, Getty ImagesMortgage approvals fell to their lowest level in two years as interest rate rises put off buyers, new Bank of England figures suggest.
They slumped to just over 46,000 in November, down from under 58,000 in October, according to the central bank.
One analyst said some home-buyers were put off by a surge in mortgage rates sparked by the mini-budget turmoil.
Economists also predicted house prices, which were already down, could fall by up to 10% across the year.
The latest figures from the Bank of England show that people were also borrowing more on credit cards as cost of living pressures continue to weigh on household budgets.
People also saved more, suggesting they are anticipating tough times ahead, one expert said.
The collapse in mortgage approvals was sparked by the mini-budget plan unveiled by previous prime minister Liz Truss and chancellor Kwasi Kwarteng in September, according to Andrew Wishart, an economist at Capital Economics.
The plan, which promised billions of pounds of tax cuts without explaining how they would be paid for, led to turmoil on the markets, and mortgage rates rising.
Mortgages had already been getting more expensive due to interest rate rises brought in by the Bank of England as it sought to tame the soaring pace of price rises.
Approvals for mortgages are expected to be depressed “for some time to come”, Daniel Mahoney, UK economist at Handelsbanken, added.
This will have a knock-on effect on house prices, which have already been falling. Handelsbanken expects house prices to fall 10% in 2023.
Thomas Pugh, an economist at auditing firm RSM, also predicted a 10% drop in house prices as mortgage approvals continue to fall.
In November, the actual interest rate paid on new mortgages increased by 0.26 percentage points to 3.35%.
This is likely to increase further, Mr Pugh said, “leading to a further slump in new mortgage approvals”.
He added that households put £5.7bn into bank and building society accounts in November.
“This suggests that very weak consumer confidence is still prompting households to spend less and save more in anticipation of tough economic times ahead,” he said.
Credit card debt increased by £1.2bn and debt charity StepChange said the figures show that rising prices “are forcing people to turn to credit to get by” in the run-up to Christmas.
“With further net borrowing increases expected following the festive period, there is potential for an increase in the number of people vulnerable to problem debt,” the charity said.
Households also stepped up borrowing against their homes in November as costs continued to spiral.
After taking into account old loans that had been paid off, people borrowed an additional £4.4bn against their homes, compared to £3.6bn in October, the Bank of England found.