Net mortgage approvals for house purchases rose slightly from 49,300 in November to 50,500 in December, and net approvals for remortgaging increased from 25,700 to 30,800.
This modest increase in mortgage approvals could indicate a stabilising or slightly more optimistic housing market. However, the numbers are still relatively modest, reflecting ongoing caution among both borrowers and lenders due to economic uncertainties like job security.
This cautious approach is illustrated by the fact individuals repaid, on net, £0.8 billion of mortgage debt, compared to net zero in November. This move towards paying off debt rather than accruing more suggests a careful approach, against the backdrop of inflation and higher interest rates. In uncertain times, reducing debt can be a way to decrease monthly expenses and prepare for potential financial strains.
Interestingly, the ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages fell by 6 basis points to 5.28% in December, marking the first drop since November 2021. While this decrease could provide minor relief to new borrowers, the high overall living costs might limit the impact of this reduction on household finances.
In the realm of consumer credit, borrowing fell to £1.2bn in December, down from £2.1bn in November. This decrease suggests that individuals might be more hesitant to take on new debts for personal spending, likely due to higher living costs, uncertainty about future income, or a shift towards more conservative financial behaviour in these uncertain economic times, which is not a bad thing given the precarious nature of finances at the moment.
Finally, households deposited, on net, £5.4bn with banks and building societies in December. The preference for saving over spending, particularly in more liquid forms like sight deposits, indicates a desire for financial security and preparedness in the face of the cost of living crisis. This behaviour might reflect concerns about needing funds readily available in case of economic downturns or personal financial needs. Locking money up for long periods will help people achieve higher interest rates but if you are struggling to make ends meet then having ready access to funds is necessary.
Overall, these figures reflect a cautious and conservative approach by individuals in managing their finances during the cost of living crisis but some life does seem to be being breathed back into the housing market. The focus does now seem to be on reducing debts, saving more, and being careful about taking on new financial obligations.