Residential mortgage approvals increased to 62,600 in February, up from 60,200 in January but below an average of around 63,500 over the previous six months, the latest Bank of England data shows.
Approvals for remortgaging with a different lender also increased to 41,200 in February, from 38,500 in January.
Net borrowing of mortgage debt increased to £4.8 billion, from £4.2 billion in January, and above the previous six-month average of £4.5 billion, while gross lending increased slightly to £23.9 billion, up from £23.6 billion in January.
However, mortgage rates had already begun to increase in February, before the full effects of the conflict in West Asia pushed up swap rates. The average rate paid on newly drawn mortgages increased slightly to 4.10% in February, from 4.09% in January, while the rate on the outstanding stock of mortgages was 3.95%, up from 3.90% in January.
Simon Gammon, managing partner at Knight Frank Finance, said: "Mortgage lending remained relatively resilient through February, although the data predates the escalation in the Middle East. Since then, borrowing costs have risen sharply, which will begin to weigh on activity in the months ahead. The cheapest fixed rates are now around 4.5%, up from roughly 3.5% in February, with further repricing still underway. It is increasingly plausible that leading fixed rates settle closer to 5% in the near term, representing a significant squeeze on borrowers.
"While much of the upward pressure reflects the energy shock linked to the conflict, there is also a clear behavioural response, with borrowers rushing to lock in deals before rates move higher. This risks overwhelming lenders and prompting further repricing, reinforcing a feedback loop in which urgency on the demand side adds to upward pressure on rates."
Karen Noye, mortgage expert at Quilter, added: “The latest money and credit statistics from the Bank of England provide a snapshot of what could have been for the mortgage and housing market. Given this data captures February, and March saw a rapid reversal of any real progress that had been made in terms of mortgage rates and buyer confidence, we can expect this positive shift to be very short lived.
"Prospective home buyers and movers who were holding out for lower interest rates will have had their hopes dashed since the start of the Iranian conflict. The Bank of England had been expected to make at least one or two cuts this year, but now it seems a hold or even an uptick is more likely. Lenders had been offering slightly more competitive rates prior to the start of the war, and this is reflected in today’s figures which show the effect rate on newly drawn mortgages was 4.10% in February, roughly in line with the 4.09% seen in January. However, this will have changed considerably in the month since."
Jonathan Samuels, CEO of Octane Capital, commented: “We’ve seen a strong start to the year where mortgage market activity is concerned, with approvals once again starting to climb and a stronger rate than anticipated.
"This improving buyer sentiment is being driven by a mortgage landscape that is far more favourable for homebuyers than it was a year ago and this remains the case despite developments in the Middle East in recent weeks.
"Whilst the Iran conflict has had an impact on mortgage sector confidence to an extent, it’s unlikely to make a lasting dent in domestic sentiment and, whilst we may see a momentary dip in approval activity in the next set of figures, the outlook for the year ahead remains wholly positive."
