British lenders approved nearly 66,000 mortgages in September, the highest level since December last year, according to new Bank of England data that contrasts with signs of caution in the housing market ahead of Rachel Reeves’s autumn budget.
The BoE’s Money and Credit report showed that mortgage approvals for house purchases rose by 1,000 to 65,900 in September, while approvals for remortgaging with a different lender declined by 600 to 37,200.
Alice Haine, a personal finance analyst at Bestinvest by Evelyn Partners, said: “UK mortgage approvals rose in September, showing signs of resilience in the housing market despite buyer activity taking a hit amid growing speculation that chancellor Rachel Reeves will target property taxes in her autumn budget on November 26.
Net mortgage borrowing increased sharply to £5.5bn, up from £4.3bn in the previous month, the strongest since March, when borrowing reached £13.2bn. The annual growth rate for net mortgage lending edged up to 3.2% from 3%, the highest in almost three years.
The effective interest rate on newly drawn mortgages fell by 7 basis points to 4.19%, the lowest since January 2023, extending a gradual decline that began in March. Rates on outstanding mortgage balances were unchanged at 3.89%.
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Haine added: “The housing market has been under pressure following the end of the stamp duty tax break in the spring, which saw thresholds returned to their previous lower levels – increasing purchase costs for buyers.
“With fears mounting that the chancellor may introduce further property tax reforms, the market is stuttering as buyers and sellers pause [their] moving plans and wait to see what unfolds.
“Higher purchase costs have already led to more subdued property price growth, with buyers negotiating harder to keep purchases affordable and sellers recognising that competitive pricing is key to securing a sale. Now, with further property taxes in contention, uncertainty is rising again, with estate agents reporting a drop in buyer demand, and in some cases, abandoned sales.”
Among potential measures, Haine mentioned the so-called “mansion tax” on properties valued above £2m, which she warned “could prove impractical and costly to enforce”. Other proposals reportedly under consideration include capital gains tax on main residences, council tax reform, and national insurance on rental income.
“One silver lining for buyers is that this uncertainty could help temper price growth in the short term, particularly at the top end of the market, delivering a boost to affordability levels for some,” she said, noting that more competitive mortgage rates and looser lending criteria had already improved access to credit.
While the Bank of England remains cautious about cutting rates further, Haine said that lower borrowing costs are beginning to ease pressure for some borrowers.
“This means that while new borrowers may benefit from lower rates, homeowners coming off historic low fixed-rate deals, secured before interest rates began rising in December 2021, still face a jump in monthly repayments unless they’ve cleared a sizeable chunk of their mortgage balance,” she said.
Nathan Emerson, chief executive of Propertymark, described the rise in approvals as “encouraging to witness”.
He added: “Many cogs need to turn harmoniously together when it comes to consumer confidence and affordability, and despite challenges within the wider economy, it is positive to see people being able to take their next step onto the housing ladder with greater ease.
“There are still concerns which need to be acknowledged, however, such as inflation sitting close to double what the Bank of England have targeted and the influence this can have regarding base rate decisions. Despite this, we remain in a much stronger position than we started the year at, when the base rate stood much higher at 4.75%.”
Read more: Barclays trims mortgage rates as UK buyers face 87-day wait from offer to completion
Richard Donnell, executive director at Zoopla, said: “Demand for mortgages to buy homes continues to increase but at a slowing rate as the rolling total over the last 12 months starts to level off as housing transactions reach close to their 10 year average of 1.2m.
“While budget speculation has hit demand and sales for homes over £500,000, the rest of the market is less affected, which explains the continued demand for mortgages.”
Karim Haji, global and UK head of financial services at KPMG, said: “While mortgage approvals appear to have strengthened, signalling a modest resurgence of activity in the housing market, remortgaging and consumer borrowing have pulled back. The decline in borrowing suggests that many households remain cautious and are prioritising repayment or savings over new borrowing.
“It also highlights a central tension for lenders: while some segments are beginning to act on housing opportunities, others are still under pressure from rising bills, inflation and the energy price cap increase.
“With the autumn budget approaching and continued speculation surrounding tax and support changes, lenders must engage early with customers at risk, revisit affordability models and ensure support channels are well prepared for any shift in household resilience.”
Elsewhere, consumer credit growth eased in September. Net borrowing fell to £1.5bn from £1.7bn in August, as borrowing through personal loans and car finance dropped to £800m from £1bn, while credit card borrowing held steady at £700m.
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