Mortgage approvals slumped to a two-year low in January as buyers remain cautious following months of damaging uncertainty around the November Budget.
Net mortgage approvals for house purchases dropped to 60,000 in January, six per cent below the 64,100 six-month average, according to new Bank of England figures.
The property market is still suffering from intense speculation over property tax reforms in the leadup to the winter Budget, experts said, though other spending metrics point to a cautious rise in consumer confidence.
The number of net mortgage approvals in January was down two per cent from 61,000 in December, marking the lowest total since 55,946 approvals in January 2024.
Remortgaging approvals also fell between December and January, down one per cent to 38,100.
Brits borrowed less mortgage debt in January, with total borrowing by individuals falling to £4.1bn from £4.5bn the month before.
The Lingering Impact of Budget Uncertainty on the Housing Market
The January dip in mortgage approvals, falling to a two-year low of 60,000, underscores a continuing hesitancy within the UK housing market. This caution is directly linked to the uncertainty surrounding the November Budget and potential property tax reforms. While the market is showing signs of stabilisation, the shadow of past speculation continues to weigh on buyer and seller confidence.
A Delicate Balance: Inflation, Interest Rates and Consumer Spending
The Bank of England’s decision to hold interest rates steady at 4% in November, with a split vote of 5-4, highlights the delicate balancing act facing policymakers. The Monetary Policy Committee is navigating a landscape where inflation is easing but remains a concern. The November 2025 Monetary Policy Report indicated that CPI inflation is judged to have peaked, but further evidence is needed on both inflation persistence and demand.
Interestingly, consumer credit rose more than expected in January, reaching £1.8bn, suggesting a cautious rise in spending. What we have is coupled with a lower-than-forecast increase in household bank account balances, indicating that consumers are increasingly willing to spend rather than save.
The Budget’s Potential Impact on Inflation and the Property Market
The Chancellor’s Budget could reduce inflation by between 0.4% and 0.5% from April 2026, according to Bank of England estimates. Measures like capping fuel duty, cutting energy prices, and freezing rail fares are expected to contribute to this easing of inflationary pressure. However, the full impact of these measures remains to be seen.
The Budget’s impact on the property market is complex. While lower inflation could eventually lead to lower interest rates, stimulating demand, the initial uncertainty created by potential tax changes has demonstrably dampened activity.
Future Trends to Watch
Several key trends will shape the UK housing market and broader economic outlook in the coming months:
- Interest Rate Trajectory: The Bank of England has indicated that further reductions in Bank Rate will depend on the evolution of inflation. A gradual downward path is likely if disinflation continues.
- Consumer Confidence: Continued growth in consumer spending, as indicated by the January data, will be crucial for sustaining economic momentum.
- Government Policy: Future government policies, particularly those related to housing and taxation, will significantly influence market sentiment.
- Global Economic Factors: Events in the Middle East and other global economic developments could introduce inflationary shocks and impact the Bank of England’s monetary policy decisions.
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