Mortgage-backed property purchases set to ‘significantly decline’ - prediction

A lender is predicting mortgage-backed home purchases will be “significantly lower” in the coming months after borrowing has dropped since the swathe of interest rate rises by the Bank of England.

The cost of borrowing, or interest rates, were increased from 0.1% to 0.25% by the Bank of England’s Monetary Policy Committee in December 2021 and have since increase to 1.75%.

Industry analysis by specialist property lender Octane Capital has revealed that since the Bank of England began to increase interest rates in December of last year, the average number of homes purchased with the help of a mortgage has declined by 33%. 

Octane Capital looked at the average monthly level of mortgage backed transactions between December of last year and the latest available data from March this year. 

It then compared this level of market activity to the four months prior.

The figures show that since the first of six consecutive base rate increases was implemented in December of last year, there have been an average of 37,019 homes purchased each month with the help of a mortgage. 

This is a 33% drop when compared to the monthly average of 55,070 per month purchased in the four months prior to this interest rate increase.

At a regional level, the North East has seen the largest reduction in mortgage market activity from homebuyers, with mortgage fuelled purchases down 39%, followed by the East Midlands, which is down 36%.

Jonathan Samuels, chief executive of Octane Capital, said: “Following the Bank of England’s decision to first increase interest rates in December of last year, there was an almost immediate retraction in market activity coming via the mortgage sector. 

“This was to be expected given the fact that it was the first base rate increase since November 2017 and particularly given the backdrop of wider economic uncertainty and the cost of living crisis. 

“We now know that this was just the tip of the iceberg with respect to increasing interest rates and this latest insight into declining mortgage sales volumes doesn’t yet account for the base rate hikes seen in May, June or August. 

“So we expect the decline in market activity coming from mortgage backed homebuyers to be significantly lower still when these figures are finally released.”