The Bank of England’s Money and Credit figures showed that gross mortgage repayments fell slightly from £18.5bn in December to £16.3bn in January.
The growth rate for net mortgage lending was 1.8% in January, higher than the rate of 1.5% the month before. The Bank of England said this continued an upward trend since April last year.
There was a £900m reduction in the net borrowing of mortgage debt to £4.2bn, following a £1.1bn increase the month prior.
Fewer house purchases, more remortgages
There was a small dip in the number of mortgages approved for house purchases, which slipped by 300 to 66,200. This was compared to an equally small rise of 400 in December.
Aldermore Insights with Jon Cooper: Edition 5 – Feeling enthusiastic about next year’s run-of-the-mill market
Sponsored by Aldermore
Meanwhile, the number of people who remortgaged to a different lender in January rose by 2,200 month-on-month to 32,900, after falling for the last two months.
The effective interest rate paid on newly drawn mortgages rose by four basis points to 4.51% in January, while the average rate on outstanding mortgages rose by two basis points to 3.81%.
A steady, confident market
Industry commentators said the slight fall in mortgage approvals for house purchases showed there was still some confidence in the market as people hoped to complete purchases before the stamp duty threshold increased in April.
Pete Mugleston, mortgage adviser and managing director at Online Mortgage Advisor, said “demand is holding firm despite economic uncertainty”.
He said the rise in remortgages showed borrowers were securing deals as rates fluctuated, but affordability was still a challenge for many borrowers, which could impact future mortgage demand.
“Demand may stabilise rather than drop, especially if lenders keep reducing rates to stay competitive,” Mugleston added.
Rosie Hooper, chartered financial planner at Quilter Cheviot, said there had been no dramatic shifts, suggesting that while demand was not collapsing, “it remains constrained by affordability pressures and cautious sentiment”.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners – the online investment platform – said: “The slight decline in mortgage approvals could be a reflection of the downbeat mood at the start of the year, when consumers evaluated the impact on their personal finances from Chancellor Rachel Reeves’ raft of tax hikes in her maiden Budget at the end of October.
“The deceleration in transactions also comes at a time when borrowers were seeing volatility in the mortgage market, with rates actually edging up amid the uncertain economic outlook. This was evident in the effective rate on newly drawn mortgages, which increased by four basis points to 4.51% in January.”
She added: “Mortgage rates have improved since then, following a third interest rate cut from the Bank of England last month. It means buyers and sellers will now be on tenterhooks to see if the central bank pushes ahead with a fourth interest rate cut later this month.
“Borrowing costs remain relatively high when compared to [the] era of cheap money that preceded the start of the BoE’s monetary tightening cycle in December 2021. The lucky borrowers still holding onto cheap fixed rate loans – secured before the BoE began hiking interest rates – will now be bracing themselves for an inevitable jump in mortgage repayments when they eventually refinance.”
Ashley Webb, UK economist at Capital Economics, said the unexpected fall in mortgage approvals suggested that housing transactions might not rise as much as predicted ahead of the stamp duty change and any fall in activity could be “smaller than we anticipate”.
Webb added: “More fundamentally, the recent sharp deterioration in the outlook for employment may weigh on housing demand in the coming months. And the first monthly rise in the effective rate on all new mortgages in five months, from 4.47% to 4.51% in January, suggests the drag on the housing market from high mortgage rates is fading only slowly.
“However, our view that mortgage rates will drop to around 4% in 2026 explains why we think a decent recovery in transactions will allow house prices to grow by an above-consensus 3.5% this year and by 4.5% next year.”
