Insight - is the pandemic property market boom fizzling out?

Despite a strong start of the house price growth this year, the latest analysis from specialist property lending experts, Octane Capital, has revealed that the heat may have already left the market when it comes to new buyer activity.  A month to month dip in mortgage approvals on house purchases has seemingly caused many to speculate whether the pandemic property market boom may soon fizzle out.

A slow level of market activity

The analysis carried out by the Bank of England depicts mortgage data that there were almost 1.6 million mortgage approvals during the previous financial year (2021/22) - a 10% increase in the last year.

Accounting for 57% of all mortgage approvals, 894,393 of these came via house purchases. However, while homebuyers remain by far the most active segment of the market, this level of activity increased by just 1% when compared to the previous financial year (2020/21).

What’s causing the crash?

During the initial pandemic year (2020/21), 62% of total mortgage approvals were accounted for and 884,482 mortgages were approved for house purchases. This was a considerable climb (11%) when compared to the previous year (2019/20).

This drastic reduction in the annual rate of growth suggests that the heightened market activity driving the current pandemic property market boom is starting to plateau, even though the latest level of annual mortgage approvals on house purchases remains high.

It is expected that a fourth consecutive interest rate increase and there is the likelihood of more to come. This may dampen buyer demand further as the year progresses, with mortgage approvals via house purchases likely to drop as a result.

Interest rates are on the rise

A greater level of growth has been spurred on by increased interest rates from those being approved for a mortgage when remortgaging their existing property and remortgages accounted for 32% of all mortgage approvals during the last financial year (2021/22) - totalling 501,501.

While this remains a smaller market segment compared to those purchasing a house, the level of homeowners remortgaging climbed by 23% year-on-year versus the 1% increase of those purchasing a house.

Jonathan Samuels, chief executive officer of Octane Capital, commented: “The level of buyers being approved for a mortgage on a house purchase has continued to climb year on year and remains incredibly high. So in this sense, the property market is still running extremely hot, although it certainly seems to have hit the ceiling with the volume of mortgage approvals for house purchases climbing by just one per cent versus the previous year.”

“A hattrick of base rate increases towards the end of the last financial year will have no doubt contributed to this reduction in buyer appetites and, in contrast, we’ve seen a sharp uplift in those remortgaging to secure better rates ahead of any further interest rate hikes.”

Samuels concluded: “With a fourth increase coming so soon in this financial year, there’s a very good chance that the market will now start to deflate, bringing property values back down to earth and returning the market to a state of pre-pandemic normality.”