Mortgage lending hits lowest level since 2016 excluding pandemic

Mortgage lending in February fell to its lowest level since 2016, excluding the pandemic, according to Bank of England figures.

It comes as higher borrowing costs make buying property less affordable.

Homeowners borrowed £700m in February, down from £2bn in January, and the lowest level for any month since April 2016 apart from the Covid crisis.

However, the Bank said the number of mortgages approved by lenders rose slightly from 39,600 to 43,500.

Karen Noye, a mortgage expert at Quilter, said the effective interest rate on new mortgages rose to 4.24% in February, making borrowing more expensive for potential home-owners.

But she said the rebound in approvals - which rose to their highest level for three months - suggested "green shoots might be appearing" in the housing market.

"It's clear that home-buyers are cautiously returning back to the market in early 2023 after the huge shocks at the back end of last year made many put their house hunts on ice. How this all feeds through to house prices is yet to be seen."

Mortgage rates began to rise last year as interest rates climbed, but they spiked in September after Liz Truss's mini-budget caused panic on financial markets.

Rates have stabilised but remain much higher than they were a few years ago, squeezing people's purchasing power.

It has fed through to house prices, which in the year to February saw their biggest annual fall in more than ten years, according to Nationwide.

Nevertheless, the Bank of England forecast that fewer households were likely to struggle to afford mortgage payments this year than previously forecast due to falling energy prices.

In December it warned 670,000 households could face difficulties.

Alice Haine, personal finance analyst at Bestinvest, said buyers were going for smaller homes to reflect their budgets as the "cost-of-living crunch is still very real".

"The cost pressures mean buyers simply cannot afford the same properties they could a year ago and must consider smaller or cheaper homes if they want to push ahead with a purchase at this time," she said.