Interest rate hike could see monthly mortgage approvals dip by more than 20%

Market analysis by real estate debt advisory specialists, Sirius Property Finance, has looked at how an increase in interest rates could dent our appetite for homeownership based on data trends seen over the last decade.

Sirius Property Finance analysed the level of monthly mortgage approvals seen over the last 10 years as well as the average mortgage interest rate for a two year fixed rate mortgage at a 75% loan to value. 

So far in 2021, the average level of mortgage approvals has rocketed to 80,671 per month. By far the highest level seen in the last decade and 64% higher than the average level seen back in 2011. 

At the same time, the average rate of interest on a mortgage has fallen to its lowest level in the last ten years at just 1.43% - 57% lower than the 3.34% seen in 2011. 

But how could an uplift in interest rates impact homebuyer appetites where mortgage approvals are concerned? 

The analysis by Sirius Property Finance shows that over the last 10 years, the level of average monthly mortgage approvals has sat at 68,556 when mortgage interest rates have been between 1.1% to 2%. 

When they’ve climbed above this level to between 2.1% and 3%, the average number of monthly mortgage approvals has dipped to 62,847, a drop of 8.3% per month. 

However, when the average rate of mortgage interest has exceeded 3.1%, the level of monthly mortgage approvals has fallen a further 20.4% to just 50,001 per month. 

Head of Corporate Partnerships at Sirius Property Finance, Kimberley Gates, commented:

“We’ve seen a sustained period of record low interest rates help drive market activity for quite some time now and so it’s only natural that any uplift is likely to reduce homebuyer appetites due to the greater cost of borrowing. 

The good news is that any increase is widely expected to be marginal and so while we may see a slight decline in the level of mortgage approvals as a result, it’s unlikely to stop the market in its tracks.”

Average monthly level of mortgage approval data sourced from the Bank of England - Mortgage approval house purchases SA. 

Average rate of mortgage interest sourced from the BSA based on a two year fixed rate mortgage with a loan to value of 75%.