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Mortgage approvals expected to soar throughout 2022, despite rate increases

In recent months, increases to the base interest rate have done little to dampen appetite in the UK housing market and mortgage approvals. But what’s expected for the rest of the year?

Despite a dip from January to February, mortgage approvals are forecast to surge again throughout 2022 as the pandemic-induced property boom shows little sign of slowing down.

Octane Capital recently analysed the mortgage market, which revealed that homebuyers and property investors are still swamping the market at record rates. In February, 70,993 mortgages were approved, which makes it the fourth-strongest February in the past 10 years.

Mortgage approvals set for another record year

Throughout 2021 as whole, there were a total of 944,487 mortgage approvals. This is by far the largest amount seen in the past decade and a whopping 60% more than the total number of mortgage approvals registered back in 2011.

Mortgage approvals are already above historic averages for the beginning months of the year, which highlights the possibility that it will be another record year for the mortgage market.

Jonathan Samuels, CEO of Octane Capital, comments: “We look set for another year of strong property market activity, driven by our insatiable appetite for homeownership.

“Historic market performance suggests that mortgage approvals are likely to climb as the year progresses, but while the property market continues to perform very well at present, mortgage costs are also set to keep on climbing.”

How will the mortgage sector impact the property market?

While it may be another historic year for the mortgage market, increasing mortgage rates could cause a slowdown in the UK property market and record-breaking house price growth. However, the fact that buyer demand continues to outweigh supply will likely cause the sector to remain strong throughout the rest of 2022.

“We’ve already seen a marginal increase as lenders reacted to a string of successive base rate increases and this is really only the tip of the iceberg,” Samuels says. “As mortgage rates and the resulting cost of borrowing start to rise, it will inevitably dampen both the sums being borrowed and the price being paid for property.

“This will impact topline house price values but it’s unlikely to cool the market to the extent that mortgage approvals start to drop.”

Mortgage rates may continue to rise

After three back-to-back base rate increases from the Bank of England, average mortgage interest rates are at a five-year high. In recent months, the base rate increased from the record low of 0.1% to 0.75%, and this has started to filter through the mortgage market.

According to Moneyfacts‘ latest data, the average rate for a two-year fixed-rate mortgage now sits at 2.86%. This is the highest level seen since 2015, and the average rate for the five-year equivalent is now 3.01%, which is the highest figure since 2016.

This is the sixth month in a row that these two fixed-rate deals have seen their average rates rise. These notable rises reflect the fact that mortgage rates have increased across the majority of lending tiers. Additionally, the average two-year tracker rate for all loan-to-values increased by 0.18% month-on-month to 2.21%.

Mortgages with fixed rates are not intrinsically linked to the base interest rate, so these don’t rise and fall exactly in line with these fluctuations. However, it’s interesting to see that both the two and five-year overall average fixed rate deals increased by 0.57% and 0.42% respectively since December, and the average rate for two-year base-rate deals has risen by 0.63%.

While there may continue to be an upwards trend on mortgage rates, they still remain at historically competitive levels, and the UK property market has continued to show its resiliency.

Shelf life of mortgages is dropping

On top of rate increases, mortgages are becoming harder for buyers and investors to grab. Product choice has decreased in recent months, and the average shelf life of current mortgages is 21 days. This is a low last seen in August 2021.

In April 2020, the average shelf life for mortgages was more than double that at 48 days. Because of this, borrowers will need to act fast to secure the best mortgage deals on offer.

Eleanor Williams, finance expert at Moneyfacts, states: “Those hoping to secure a new mortgage may wish to act sooner rather than later to lock in a competitive option, as not only have average rates continued on an upwards trajectory this month, but prospective borrowers may find that their selected products are not on offer for long.

“As there is no guarantee rates will not continue to climb, the incentive to secure a competitive new fixed rate to provide shelter from potential further rate volatility remains and, as our top tables show, there are still products with extremely competitive rates available, but the support and advice of a broker in securing these could be wise.”

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