Mortgage Approvals Plummet: A Sign of Consumer Caution, Not Confidence

Mortgage approvals have plummeted to their lowest level in two years this January, yet consumer credit jumped and business borrowing surged. The disconnect raises an uncomfortable question for policymakers: are households genuinely feeling more confident about the economy, or are they simply avoiding the one spending decision that truly tests their faith in the future?

The Bank of England's latest figures show net mortgage approvals for house purchases fell to 60,000 in January, down from 61,000 in December and six per cent below the six-month average of 64,100. That's the weakest figure since January 2024, when approvals hit 55,946. Meanwhile, consumer credit expanded by £1.8bn, and large business borrowing accelerated to an annual growth rate of 9.4 per cent, up sharply from 7.7 per cent the previous month.

What makes this divergence particularly striking is the timing. Rachel Reeves's November Budget was supposed to draw a line under months of speculation about property tax reforms, including potential changes to capital gains treatment and stamp duty. The uncertainty deterred transactions throughout autumn, creating a backlog that many expected would clear once the Chancellor had spoken. That clearance hasn't materialised.

Enjoying this article?

Get stories like this in your inbox every week.

Join the Community

The Budget hangover that won't shift

January's weakness cannot be dismissed as a seasonal quirk. Remortgaging approvals also declined, dropping one per cent to 38,100, whilst total mortgage borrowing by individuals contracted to £4.1bn from £4.5bn in December. These aren't figures that suggest pent-up demand suddenly finding its release.

Jason Tebb, president of property search website Onthemarket, maintains that 'post-Budget clarity has since helped steady confidence', but the data tells a different story. Confidence may have steadied in relative terms compared to the pre-Budget paralysis, but steady doesn't mean strong. The property market remains in a holding pattern.

Households will happily put £1.8bn on credit cards and drain their savings by less than forecast, but they won't commit to a 25-year mortgage.

According to Karim Haji, head of financial services at KPMG, the sluggish start to the year 'underlines how fragile household confidence remains'. His reading is that borrowers are choosing caution, prioritising financial resilience over major commitments. That interpretation fits the broader picture: households will happily put £1.8bn on credit cards and drain their savings by less than forecast (deposits grew by £4.2bn against expectations of £4.5bn), but they won't commit to a 25-year mortgage.

What consumer spending really signals

The temptation for economists is to read rising consumer credit and falling bank deposits as signs of returning confidence. Ruth Gregory, deputy chief UK economist at Capital Economics, argues that January's money and lending data 'support other evidence that suggests the economy strengthened at the start of the year'. Perhaps. But there's another way to interpret this: households are spending on discretionary items precisely because they're not taking on mortgage debt.

A mortgage approval commits a household to decades of monthly payments, sensitive to interest rate movements and dependent on sustained employment. Putting a holiday on a credit card or replacing a sofa doesn't. The willingness to spend on consumer goods whilst avoiding property commitments might signal something closer to short-term optimism overlaying long-term anxiety.

Business borrowing tells a slightly different story. The 9.4 per cent annual growth rate among large businesses suggests corporate treasurers see opportunities worth financing. Yet even here, the question is whether this represents genuine expansion plans or simply refinancing existing positions in a still-elevated rate environment.

The inflation wildcard

Gregory's observation about inflationary shocks deserves more attention than a passing mention. She warns that 'the growing risk is that an inflationary shock from the event in the Middle East limits interest rate cuts and puts a handbrake on growth this year'.

The property market has always functioned as a confidence gauge precisely because it forces households to make long-term bets on their financial stability.

For mortgage borrowers, this matters enormously. The entire calculus of whether to buy depends on assumptions about where interest rates are heading. If geopolitical instability drives energy prices higher and forces the Bank of England to keep rates elevated for longer, anyone who locked in a mortgage in early 2025 could find themselves nursing significant opportunity cost. Better to wait, rent, and see how the landscape develops.

The property market has always functioned as a confidence gauge precisely because it forces households to make long-term bets on their financial stability. When approvals fall this sharply whilst other forms of borrowing rise, it suggests households are making a calculated distinction between spending they can adjust month-to-month and commitments they cannot escape.

Whether this represents a temporary Budget-induced pause or something more structural will become clearer over the next quarter. If approvals remain depressed through spring despite stable interest rate expectations, it would suggest deeper reservations about household finances that credit card data and business lending figures are missing. The property market, inconveniently for policymakers, may be telling the truth that other metrics are too polite to mention.

More articles by Ross Williams