In February 2024, the UK mortgage market experienced a notable increase in mortgage approvals, reaching the highest level since September 2022. The Bank of England reported 60,100 approvals following a mortgage price war which led to decreased interest rates on new loans. This resurgence in the mortgage market was a reaction to previously fluctuating rates influenced by consecutive interest rate hikes from the Bank of England. The interest rate for new mortgages fell from 5.2% in January to 4.9% in February, sparking a renewed interest among buyers.

Economic forecasts suggest a possible slowdown in mortgage approvals in the coming months, with expectations of a rebound if the Bank of England cuts interest rates, anticipated as early as June. Despite the slight increase in the overall average interest rate on existing mortgages, many homeowners continue to benefit from low rates on past fixed-rate deals.

Parallelly, London’s property market showed a significant uptick in activity, particularly among first-time buyers (FTBs) who constituted over half of the house sales in the city in the first quarter of the year. This shift towards homeownership among FTBs is marked by an emerging trend of ‘shrinkflation,’ where individuals are finding themselves compromising on home size due to elevated mortgage costs. This phenomenon points towards the financial challenges new homeowners face, with the average London FTB now paying more monthly than those entering the market a few years back.

The trend of shrinkflation, commonly associated with consumer goods, is now evident in the property market, highlighting the hurdles for FTBs in London aiming for homeownership. This situation underlines the evolving dynamics within the UK’s property and mortgage landscape as buyers and homeowners navigate through changing financial conditions and market trends.