The latest data from the Bank of England’s Money and Credit report reveals a mixed picture for the UK housing market, with mortgage borrowing increasing but approvals for house purchases seeing a slight decline.

Net borrowing of mortgage debt by individuals rose by £0.9 billion to £4.2 billion in January, suggesting continued demand despite economic headwinds. However, net mortgage approvals for house purchases fell slightly by 300 to 66,200, indicating a cautious approach from buyers amid market uncertainty.

In contrast, approvals for remortgaging increased by 2,200 to 32,900, reversing a two-month decline.

Meanwhile, consumer credit borrowing increased, with net borrowing reaching £1.7 billion, up from £1.1 billion in December. Within this, credit card borrowing increased sharply to £1.1 billion, marking the highest rise since November 2023.

MARKET UNCERTAINTY

Joe Pepper, UK CEO at PEXA, attributes the drop in mortgage approvals to ongoing market uncertainty and affordability pressures.

He said: “This fall in approvals is a direct result of lingering market uncertainty. London was an anomaly, but aside from that, house prices continued rising in 2024, reducing buyers’ affordability. Clearly, we are still seeing the impact of this on approvals.”

Looking ahead, Pepper expects market activity to pick up with upcoming policy changes.

He added: “The reduction of the Stamp Duty threshold in April is sure to spur some housing market activity as buyers rush to complete their transactions.

“On top of that, with the Bank of England cutting the base rate earlier this month, we are already seeing mortgage rates come down, causing a bit of a double-pronged attack on the market and the conveyancing infrastructure that sits behind it.”

He also warned that the property market’s ability to drive economic growth hinges on improving infrastructure.

“If we want to actually see that happen, we need more than verbal endorsement – if this rush on activity comes to fruition as we expect, then we need to make sure the infrastructure is readily placed to sustain it. The current technology simply won’t cope, and we urgently need investment into digitisation if we’re going to address the issues the market still suffers from.”

MORTGAGE RATES AND BUYER SENTIMENT

Mark Harris, chief executive of mortgage broker SPF Private Clients, sees stability in the market despite the minor drop in approvals.

“It’s steady as she goes for the housing market, with mortgage approvals for new purchases falling very slightly in January,” he said.

However, he highlighted concerns over rising borrowing costs.

“The effective interest rate paid on new mortgages rose to 4.51%, and since then, we have seen lenders repricing at fairly short notice, with the best deals not hanging around for long. With inflation edging up again, hopes of several rate cuts this year have been dented.”

Harris also noted a rise in remortgaging activity, suggesting that borrowers are actively seeking better deals.

“Remortgaging is picking up, perhaps indicating that borrowers are shopping around for a more competitive deal from another lender rather than sticking with their existing mortgage provider.”

HOUSING MARKET RESILIENCE AMID POLICY CHANGES

Jeremy Leaf, a north London estate agent and former RICS residential chairman, observes that the market remains resilient despite policy shifts.

“The housing market is shrugging off concerns with regard to the Stamp Duty holiday concession ending this month. These figures provide further evidence of the resilience and underlying confidence in home buying, setting the tone for activity over the next few months at least.”

Leaf also noted shifting buyer preferences and economic concerns.

“What we have noticed in our offices is more interest in viewing houses – rather than flats – but increasing concerns about job security, inflation, and the pace of future interest rate cuts. This, along with more choice, has meant protracted negotiations and lengthening transaction times.”

CONFIDENCE IN MARKET DESPITE UNCERTAINTY

Tomer Aboody, director of specialist lender MT Finance, interpreted the data as a sign of underlying market confidence.

“With approvals showing only a slight fall in January, this further indicates the confidence felt in the market at the start of the year.”

He also acknowledged that interest rates remain a factor but sees borrower sentiment improving.

“Interest rates may be higher than many are used to but remain at an affordable level compared to 2023, and further indications of further falls in rates to come are fuelling borrower confidence.”

Looking ahead, Aboody warned of potential market shifts as key policy changes take effect.

“With the looming changes to Stamp Duty upon us, there is some apprehension about the next few months and how the market will react to the fallout from Reeve’s October Budget,” he said.

And he added: “Many are hoping for further rate cuts and/or increased flexibility from lenders, which would help boost activity.”