Home Purchase Lending Fuels Market Return

Home purchase lending shows UK market resilience, with borrowing surging to its highest point since March. Net mortgage lending jumped by £1.2 billion, reaching £5.5 billion, signalling robust buyer confidence despite wider economic uncertainty.

This spike suggests many prospective homeowners are moving forward. Indeed, they seem undeterred by speculation about the Autumn Budget.

A Turning Point: Purchasing Overtakes Remortgaging

Perhaps the most telling statistic from the Bank of England’s data is the shift in market dynamics. For the first time since interest rates began their sharp ascent in 2022, activity is being driven by new house purchases rather than refinancing.

Approvals for property purchases, a strong indicator of future market activity, climbed by 1,000 to 65,900. In contrast, remortgaging approvals saw a slight dip of 600, falling to 30,400.

This “flippening” is significant. It indicates that the initial rush of homeowners scrambling to secure new fixed-rate deals in a high-rate environment has largely subsided. What remains is a more standard, steady flow of refinancing. The focus has now shifted back to buyers actively committing to moving home.

Home Purchase Lending Adapts to ‘New Normal’ Rates

Experts note that the market is showing remarkable adaptation to the higher borrowing-cost environment that has defined the last two years.

Richard Donnell, Executive Director at Zoopla, highlighted that mortgage approvals for home purchases have risen by a substantial 19% year-over-year. This brings market demand back in line with pre-pandemic levels.

Donnell added that new mortgage rates were higher at 4.5%. However, he said the “housing market has adjusted well” as incomes support affordability. This adjustment, combined with a slight easing in house prices in some areas, has gradually rebuilt the confidence of buyers.

Annual growth in net mortgage lending, now standing at 3.2%, also reached its highest point since January 2023.

Favourable Conditions Emerge as Lenders Compete

This buyer confidence is being met by an increasing appetite from lenders. Gross mortgage lending climbed to £24.9 billion in September, up from £23 billion in August, suggesting finance is flowing more freely.

Crucially for borrowers, the cost of that finance is softening. The average rate on newly drawn mortgages fell by seven basis points to 4.19%, its lowest level since the start of 2023.

Why Are Mortgage Rates Softening?

This improved affordability is not accidental. It is a direct result of changing conditions in the financial markets and a strategic push by lenders.

John Phillips, CEO of Just Mortgages and Spicerhaart, noted that lenders are “keen to lend and have the funds available to do so.”

The primary driver is the fall in swap rates – the rates at which lenders secure fixed-rate funding themselves. These rates have been declining since the summer, giving lenders more room to cut their own mortgage rates without shrinking their profit margins. This has sparked increased competition as banks and building societies vie to attract more business before the end of the year.

Budget Jitters Fail to Deter Home Purchase Lending

Some commentators note “wait-and-see” behaviour ahead of the Budget. However, the data tells a different story.

The strong September lending figures clearly show that a significant number of buyers are not delaying their decisions. The market appears to be operating on solid fundamentals – such as housing needs and improved affordability – rather than reacting to political or fiscal speculation.

Looking ahead, this renewed stability has fostered cautious optimism. Donnell predicts that the trend will continue, forecasting “5% more home sales than last year with house prices rising 2.5% over 2025.” This suggests a return to a more sustainable and balanced property market.