Brighter picture for mortgage market as approvals and deals increase

The mortgage market is continuing to recover from the turmoil that followed last autumn's "mini Budget".

After the September statement by then-Chancellor Kwasi Kwarteng in the House of Commons there was a fall in the value of the pound and an increase in the cost of UK government borrowing, with a knock-on impact in the mortgage market in the form of a mass withdrawal of mortgage deals and escalating mortgage rates.

This led to a significant decrease in mortgage approvals as many buyers were priced out of the market, while others delayed their house move until things settled down.

Since then, the situation has improved with rates falling back from earlier highs and a wider choice of mortgages on offer.

Mortgage approvals up

Net mortgage approvals for house purchases rose to 52,000 in March, from 44,100 in February, according to the latest data from the Bank of England.

Although this is below the monthly average for 2022 of 62,700, it represents a five-month high after the volatility of recent months.

Remortgaging with a different lender also increased, with approvals rising to 32,200 in March from 28,200 in February.

Mortgage rates are still elevated compared to where they were a year ago as the Bank of England has been raising the base rate to help tackle high inflation.

In March, the 'effective' interest rate -- the actual interest rate paid -- on newly drawn mortgages increased from 4.24% to 4.41% and the rate on the outstanding stock of mortgages rose from 2.64% to 2.73%.

Ashley Webb, UK economist at Capital Economics, expects interest rates to remain high for the rest of the year, meaning mortgage lending will "probably remain weak", the Financial Times reported.

Availability improves

What about the availability of mortgage deals?

Financial data website Moneyfacts has found that there are now over 5,000 mortgages on the market, the highest since February 2022. The month-on-month rise in products was 774.

A deeper dive into the figures shows an increase in several loan-to-value brackets, including mortgages at 95% loan-to-value (LTV) which exceeded 200 deals for the first time since September last year.

Moneyfacts reported that interest rate competition among lenders was "mixed" but added that fixed mortgage rates are widely expected to reduce over the next few months.

And there is good news for borrowers with a large deposit or equity, with the average rates at 60% LTV for a two-year or five-year fixed mortgage now standing below 5%.

"Borrowers comparing both rates and the overall mortgage packages would be wise to seek independent financial advice to assess the true cost of any deal, and to ensure it's the right time for them to refinance," said Rachel Springall, finance expert at Moneyfacts.