The number of UK mortgage approvals soared to a 26-month peak in October, as homebuyers appeared unfazed by rising taxes and persistently high interest rates.
According to the Bank of England, 68,300 home loans were approved last month, up from 66,100 in September, surpassing economists’ forecast of 64,500.
This marks the highest level of mortgage approvals since August 2022, just before Liz Truss’s brief and turbulent tenure as Prime Minister triggered a sharp rise in interest rates.
The figures suggest that the housing market remained robust despite concerns about tax hikes ahead of the Labour government’s first budget on 30 October.
Although Chancellor Rachel Reeves unveiled £40 billion in revenue-raising measures, these were largely directed at businesses rather than individual taxpayers.
A decline in mortgage rates over the summer had already fuelled optimism for a busy autumn housing market. However, analysts have cautioned that the chancellor’s fiscal policies could dampen any recovery.
Reeves’s spending and borrowing plans have led to expectations of fewer interest rate cuts from the Bank of England, as concerns grow that inflation may remain elevated for longer.
“October saw heightened activity as buyers and sellers rushed to finalise deals before the budget, but sentiment has since soured,” said Simon Gammon, managing partner at Knight Frank Finance. “Many lenders raised mortgage rates in the two weeks following the budget.”
Although the Bank of England has implemented two rate cuts this year, it has adopted a cautious stance on further reductions, wary of how businesses might respond to a substantial payroll tax increase.
This caution has contributed to a slight uptick in mortgage rates, which had fallen from around 6% earlier in the year.
Data from Moneyfacts revealed that the average two-year fixed mortgage rate stood at 5.52% on Thursday, up from 5.39% just before the budget.
As the housing market navigates these challenges, the outlook remains uncertain. While October’s surge in approvals suggests resilience, the potential for higher borrowing costs could temper activity in the coming months.
