Mortgage approvals have fallen to their lowest level since 2023. Islay Robinson explores what rising borrowing costs mean for buyers and why financing certainty could create an advantage in a slower market.

Mortgage approvals for house purchases have fallen to their lowest level since December 2023.

The Bank of England's August figures showed 54,900 approvals, down from 55,900 in July and well below the six-month average of around 60,100. The figure is an important one because approvals give us an indication of future borrowing and therefore future housing activity.

But the number itself is not what interests me most.

It is what is happening alongside it.

Mortgage rates have moved higher. Buyers are becoming more selective. Sales agreed are falling. And expectations for the Bank of England's November meeting have shifted sharply.

For me, that combination tells us something more important than simply whether the housing market is having a weak month.

The cost of finance is starting to change how people behave.

The Market Has Become More Difficult to Read

The August approvals figure was the lowest in 32 months, but it would be easy to look at that number in isolation and conclude that buyers have simply disappeared.

I don't think that is what is happening.

There is still demand in the market. What has changed is the willingness and ability to transact at previous pricing.

Zoopla's latest data shows the number of homes for sale is 5% higher than a year ago, while sales agreed are 9% lower. Its analysis also found that average mortgage rates had reached 5.2%, with the typical buyer facing around £150 a month more in mortgage costs than at the beginning of the year.

That creates a very different dynamic.

There are still buyers. There are still sellers. But both sides have become more cautious about the price at which they are prepared to transact.

That is particularly noticeable in London and the South, where affordability pressures are greater and properties can remain on the market for longer.

Mortgage Pricing Has Moved Ahead of the Bank Rate

The other part of the story is what has happened to mortgage pricing.

The Bank of England's base rate has not needed to move for mortgage rates to rise.

The effective interest rate on newly drawn mortgages increased to 4.60% in August, from 4.45% in July, according to the Bank of England. Meanwhile, Moneyfacts data showed the average five-year fixed rate reaching 6% on 5 October, with the average two-year fix at 5.98%, their highest levels in around three years, as reported by AJ Bell.

This is an important distinction for borrowers.

Mortgage pricing is influenced by market expectations and funding costs, not simply the Bank Rate on the day a mortgage is arranged.

That means borrowers can face higher rates before the Bank of England actually changes its policy rate.

And that is what we are seeing now.

The Market Is Already Pricing In More Uncertainty

By the end of September, financial markets were assigning a very high probability to a 0.25 percentage point increase at the Bank of England's 5 November meeting. Market pricing at the time put the probability at around 88%, although this can change quickly as economic data and expectations move.

The Bank of England held Bank Rate at 3.75% in September, with three of the nine MPC members voting for a 0.25 percentage point increase. The next decision is due on 5 November.

The precise probability will move from day to day, so I would not put too much weight on the exact percentage.

What matters to me is the direction of travel.

Markets have moved from expecting borrowing costs to ease towards pricing in a greater risk that rates remain higher for longer.

That has consequences for anyone with a transaction coming up.

If you are buying a property, refinancing, or approaching the end of an existing facility, the question is no longer simply what the Bank of England does next.

It is what lenders are already pricing into their products.

A Slower Market Does Not Necessarily Mean a Bad Market for Buyers

There is another side to this.

A weaker approvals number is negative for overall market activity. But for a buyer who is financially prepared, lower transaction volumes can sometimes create a better negotiating environment.

Fewer active buyers can mean less competition.

Zoopla's latest research suggests that buyers are becoming more selective rather than disappearing altogether. It also found that London remains one of the slower markets for sellers, with only around three in ten homes finding a buyer within three months.

That matters.

For a buyer who has the financial capacity to transact, waiting for the market to become clearer is not the only option.

The question is whether they are in a position to negotiate with certainty of funds, and whether buying now is right for their circumstances.

Certainty of Funds Can Become a Negotiating Advantage

This is where I think financing preparation becomes particularly important.

The clients asking me the sharpest questions right now are not necessarily asking whether they should buy.

They are asking how they can be the buyer with certainty of funds when a seller has fewer offers on the table.

That is a very different question.

A buyer who has already had their income, assets and proposed borrowing structure assessed can potentially move with greater confidence when the right property appears.

That does not mean having an agreement in principle guarantees a mortgage. It does not. A lender still needs to complete its full underwriting, assess the property and satisfy its lending criteria.

But there is a meaningful difference between starting that process after an offer has been accepted and having already done much of the preparatory work.

In a competitive transaction, that difference can matter.

A seller may prefer a slightly lower offer from a buyer who appears capable of completing over a higher offer where the financing remains uncertain.

For me, that is one of the more important considerations in the current market.

The £1 Million Plus Market Works Differently

The picture is also different for the clients I work with on larger transactions.

A £2 million or £5 million mortgage does not necessarily follow the same pricing dynamics as a mainstream residential mortgage.

Private banks and specialist lenders can assess larger borrowing requirements individually, taking into account the borrower's assets, income, liquidity, existing debt, property portfolio and overall financial position.

That means the headline mortgage rate reported across the mainstream market is not necessarily the rate that matters to a high-net-worth borrower. Terms for larger loans can be better or worse than mainstream averages.

What matters more is the combination of lender appetite, structure, leverage, currency, security, and the client's wider balance sheet.

I have seen situations where two lenders can take very different views of the same borrower.

That is why I would not approach a complex transaction by asking, “What is the market rate?”

I would ask, “Which lenders are actually prepared to lend on this transaction, and on what structure?”

What I Am Watching Now

There are several indicators I am watching over the coming weeks.

Mortgage approvals are clearly one of them.

So are mortgage pricing, swap rates, transaction volumes and the behaviour of sellers.

The Budget on 28 October is another obvious point of uncertainty, particularly for anyone considering a property purchase before the end of the year.

But I would not make a financing strategy dependent on one particular date.

Markets can move before the announcement.

They can move on the expectation of an announcement.

And they can move in the opposite direction afterwards.

My View

I don't think the latest approvals figures mean the property market has stopped working.

They tell me that the market has become more selective.

Buyers are questioning affordability. Sellers are having to think harder about pricing. Mortgage rates have moved higher and expectations around future interest rates have changed.

That creates challenges, but it can also work in favour of buyers who are prepared, although prices may still fall and buying now will not be right for everyone.

The clients who are best placed right now are not necessarily the ones trying hardest to predict what the Bank of England will do next.

They are the ones who understand what they can borrow, which lenders are realistic for their circumstances and how quickly they can move when the right property appears.

If the market continues to soften, they may have more negotiating power.

If rates move higher, they have already considered the financing.

If the right property comes to market tomorrow, they are in a position to act.

That is the approach I would rather take.

Prepare for the market you have, rather than trying to predict the market you might get.

Islay Robinson
CEO and Founder, Enness Global

Risk warning: Your home may be repossessed if you do not keep up repayments on your mortgage.

If your income or assets are in a different currency from your mortgage, changes in exchange rates may increase the amount you need to repay.

This article is for general information only and does not constitute personal financial or mortgage advice. Lending decisions, rates and terms are subject to individual circumstances and lender criteria. Property prices can fall as well as rise. Enness does not provide property, investment or tax advice.