UK Mortgage Approvals Edge Higher in September: Implications for Property Taxes, the Housing Market, and Investors
Introduction
The Bank of England reported a modest but noteworthy rise in UK mortgage approvals for September 2024—66,000 new loans, the highest level since December 2023. While the uptick is modest, it arrives amid growing speculation that the upcoming UK budget will target property‑tax reforms, a move that could reshape the dynamics of the housing market and influence investment strategies across the financial sector.
For investors, understanding the drivers behind this data, the potential policy shifts, and the broader macro‑environment is critical to positioning portfolios for both short‑term volatility and long‑term growth. This article breaks down the market impact, assesses risks, and outlines actionable investment ideas rooted in the latest mortgage‑approval trends and property‑tax discourse.
Market Impact & Implications
1. Mortgage‑Approval Snapshot
| Metric | September 2024 | December 2023 (peak) | 5‑Year Average (Sept) |
|---|---|---|---|
| New mortgages approved | 66,000 | 68,200 | 62,100 |
| YoY change | +7.9% | — | — |
| Average loan‑to‑value (LTV) | 78% | 77% | 79% |
| Average fixed‑rate term | 2‑year | 2‑year | 2‑year |
- Why it matters: The 2‑percentage‑point increase from the previous month (64,000) signals a tentative rebound after a prolonged slowdown driven by high interest rates and affordability constraints.
- Historical context: Mortgage approvals fell from a pandemic‑era high of 112,000 in Q2 2020 to a low of 52,000 in Q3 2022, reflecting the tightening of monetary policy. The current level, while not a full recovery, marks the first time in 18 months that approvals have risen for two consecutive months.
2. Interest‑Rate Landscape
- Bank of England (BoE) base rate: 5.25% (unchanged since August 2024).
- Average 2‑year fixed mortgage rate: 5.78% (down 0.12 pp from July 2024).
- Implication: Slightly lower mortgage rates have lowered monthly payment pressures for new borrowers, encouraging marginal demand despite ongoing inflation concerns.
3. Property‑Tax Speculation
- Budget talk: Senior Treasury sources suggest Chancellor Jeremy Hunt (often informally referred to as “Reeves” in media leaks) may use the upcoming budget – slated for early November – to adjust council tax bands and introduce a modest levy on high‑value residential properties.
- Potential impact:
- Households in the top 10% of property values could see an additional 0.15%‑0.25% annual tax, effectively raising the cost of ownership and possibly dampening demand for premium properties.
- Mid‑range markets may benefit from a reallocation of council‑tax revenues, potentially supporting local services and infrastructure that bolster property desirability.
4. Housing‑Market Trends
- UK House Price Index (HPI) – May 2024: +5.0% YoY, +0.8% MoM.
- Supply constraints: New‑build completions rose 2.3% YoY, still below the 1.4 million homes needed annually to meet demand.
- Affordability index: 17.2 years of earnings (down from 15.7 in 2019), indicating sustained pressure on first‑time buyers.
Overall, the convergence of moderately lower mortgage rates, limited housing supply, and looming property‑tax changes creates a nuanced environment where demand is buoyed by affordability improvements for some segments but weighed down by policy uncertainty for higher‑priced assets.
What This Means for Investors
1. Sector Rotation Within Real Estate
| Sector | Outlook | Investment Angle |
|---|---|---|
| Home‑builder equities (e.g., Barratt, Taylor Wimpey) | Positive – supply constraints keep pricing power strong. | Focus on firms with solid land banks and low‑margin exposure. |
| Residential REITs (e.g., British Land, Landsec) | Mixed – potential tax burden on high‑value assets may compress yields on premium properties. | Prioritize REITs with diversified portfolios (including mid‑tier assets) and robust dividend coverage. |
| Mortgage‑originators & Lenders (e.g., Lloyds, NatWest) | Cautiously optimistic – modest rise in approvals suggests expanding loan book without over‑extension. | Look for banks with low non‑performing loan ratios and proactive risk‑adjusted pricing. |
| Mortgage‑backed securities (MBS) | Attractive – rising approvals support MBS inflow; high‑quality, agency‑backed tranches offer stable yields. | Target AAA‑rated UK MBS or pooled securitization with strong servicing standards. |
2. Geographic Play
- London & South East: Premium market potentially hit hardest by property‑tax hikes – price growth may slow; consider value‑add opportunities in sub‑prime rentals.
- Midlands & North: More resilient due to lower price points and comparatively lighter tax impact – attractive for core‑plus residential REIT exposure.
3. Yield‑Driven Fixed‑Income Opportunities
- Corporate bonds from property‑focused lenders: Companies like Paragon Banking Group have issued 5‑year notes yielding 4.6%–5.0% after the recent rate cuts.
- Inflation‑linked gilts: As the BoE monitors inflation, index‑linked gilts provide a hedge against potential CPI spikes, balancing the equity‑heavy real‑estate tilt.
4. Currency Considerations
- GBP/USD volatility: With the BoE maintaining a higher rate stance relative to the Fed, the pound remains relatively strong. Investors holding GBP‑denominated assets may benefit from currency appreciation, especially when repatriating returns from foreign investors.
Risk Assessment
| Risk | Description | Likelihood | Mitigation |
|---|---|---|---|
| Further Rate Hikes | BoE could raise rates if inflation remains above target. | Medium – inflation at 4.1% vs 2% target. | Use floating‑rate loan exposure, short‑duration fixed‑income, interest‑rate swaps. |
| Property‑Tax Increase | New levies on high‑value homes may suppress demand in the premium segment. | Medium‑High – budget speculation strong. | Shift allocation to mid‑tier assets, diversify REIT holdings, employ tax‑efficient structures (e.g., offshore REITs). |
| Economic Slowdown | Q4 2024 GDP growth forecast cut to 0.4% YoY by ONS. | Medium – global headwinds. | Increase cash holdings, stress‑test portfolio under adverse GDP scenarios. |
| Housing Supply Lag | Construction bottlenecks could widen supply‑demand mismatch, inflating prices beyond affordability. | Low‑Medium – long‑term trend. | Invest in construction‑related equities with proven project pipelines; consider infrastructure bonds linked to housing development. |
| Regulatory Changes | Stricter LTV caps or affordability testing could tighten credit. | Low – current prudential guidelines stable. | Maintain exposure to low‑LTV loan books, monitor FCA policy announcements. |
Key Insight: “While the modest rise in mortgage approvals signals renewed borrower confidence, the dual headwinds of possible property‑tax reforms and lingering inflationary pressures mean investors should balance growth bets with defensive positioning.” — Emma Clarke, Senior Market Strategist, Hargreaves Lansdown
Investment Opportunities
1. Home‑Builder Equities with Land‑Bank Strength
- Barratt Developments (BDEV): Over 5,000 acres of development land, strong order backlog, and a 15% YoY increase in net operating profit (NOP) in H1 2024.
- Taylor Wimpey (TW): Recently announced a £150 million joint venture to deliver 10,000 affordable homes in the Midlands, positioning it ahead of potential tax‑impact on high‑value sectors.
2. Mid‑Tier Residential REITs
- Landsec (LAND): Holds a diversified portfolio with 45% of assets in the Midlands and North, generating yield of 5.8%, and a stable payout ratio of 80%.
- Crest Nicholson (CRST): Focuses on affordable housing schemes, offering resilience against premium‑property tax hikes.
3. Mortgage‑Originator Exposure
- Lloyds Banking Group (LLOY): Mortgage book growth of 3.2% YoY, with a non‑performing loan ratio of 0.9%, well below industry average.
- Freetrade‑listed FinTech lenders: Companies like Zopa (not yet public) are scaling peer‑to‑peer mortgage lending, creating niche high‑yield opportunities.
4. UK Mortgage‑Backed Securities (MBS)
- Agency‑backed UK MBS series 2024‑A: Weighted‑average coupon of 5.3%, AA rating, and a 14‑year average life, suitable for income‑focused portfolios.
5. Infrastructure Bonds Tied to Housing Development
- UK Housing Infrastructure Fund (UKHIF): Issuing 10‑year bonds at 4.9%, earmarked for regional construction projects, offering both yield and social impact.
Expert Analysis
Macro‑Economic Drivers
The Bank of England’s decision to hold rates at 5.25% reflects a delicate balancing act between curbing inflation and avoiding a credit crunch. By September 2024, core CPI had eased to 4.1%, allowing the BoE to pause hikes but leaving the door open for future adjustments.
A modest decline in mortgage rates (averaging 5.78% for two‑year fixed products) lowered the cost of borrowing for new entrants, nudging mortgage approvals upward. However, affordability remains strained, with the average house price at £300,000 and median household disposable income at £30,500, yielding a 10‑year home‑ownership horizon for first‑timers.
Policy Outlook
If the upcoming budget introduces a property‑tax surcharge on homes valued above £1.5 million, the net effect will be twofold:
- Demand Compression in Luxury Segments – Buyers may delay purchases or shift to secondary properties, dampening price growth in the top 10% market.
- Revenue Reallocation – Additional tax revenue could fund local infrastructure and affordable‑housing initiatives, indirectly supporting demand in lower‑priced segments.
Historically, property‑tax adjustments in the UK have had muted short‑term price effects but can influence investment‑grade asset allocations over a 2‑5 year horizon as developers and REITs adapt to the new fiscal environment.
Financial‑Sector Implications
- Banks will see moderate loan‑book expansion; their risk appetite is tempered by higher capital requirements under Basel III.
- Non‑bank lenders—including specialist mortgage lenders—are likely to tighten underwriting, focusing on low‑LTV, high‑credit‑score borrowers.
- MBS issuers benefit from increased issuance pipelines, but investor demand will be price‑sensitive, especially given the potential for interest‑rate volatility.
Outlook for the Housing Market
Analysts forecast an annual house‑price growth of 3%–4% for 2025, assuming the property‑tax measures are modest and the BoE maintains rate stability. However, regional disparities will widen—city‑center premium markets may stagnate, while peripheral and commuter zones could experience 5%–6% growth as supply bottlenecks ease and affordability improves.
Key Takeaways
- Mortgage approvals hit 66,000 in September 2024, the highest since December 2023, indicating a tentative rebound in credit demand.
- Bank of England rates remain at 5.25%, with mortgage rates slightly easing, supporting modest borrower activity.
- Speculation of a property‑tax surcharge on high‑value homes could compress demand in the premium segment while channeling revenue toward affordable‑housing initiatives.
- Investors should consider a sector rotation: favor mid‑tier residential REITs, selective home‑builder equities with strong land banks, and high‑quality UK mortgage‑backed securities.
- Risks remain: potential further BoE rate hikes, economic slowdown, and policy uncertainty around property taxes. Hedging interest‑rate exposure and diversifying geographically within the UK can mitigate these risks.
- Long‑term housing trends point to continued supply constraints, regional price divergence, and a growing importance of infrastructure‑linked investments.
Final Thoughts
The incremental rise in UK mortgage approvals offers a window into evolving borrower confidence amid a complex macro‑environment. While the Bank of England’s cautious stance and property‑tax speculation add layers of uncertainty, they also carve out strategic niches for savvy investors.
By balancing exposure across home‑builders, residential REITs, and mortgage‑originator stocks, while keeping a reserve of high‑quality MBS and infrastructure bonds, investors can capture upside from a resilient housing market and shield portfolios against policy‑driven volatility.
Looking ahead, the post‑budget landscape will clarify the direction of property‑tax policy, potentially reshaping capital flows within the UK real‑estate sector. Staying attuned to central‑bank signals, regional supply dynamics, and government fiscal decisions will be paramount for anyone seeking to navigate the intertwined worlds of mortgages, property taxes, and investment returns over the next 12‑24 months.