Demand for new home loans has risen to its highest level in more than two years as falling interest rates attract buyers back into the property market. Figures from the Bank of England showed mortgage approvals for new purchases rose by 700 to 65,600 in September – the fourth monthly increase in a row. The increase in approvals – seen as a good guide to future borrowing – followed August’s cut in official interest rates by the Bank’s monetary policy committee (MPC) from 5.25% to 5%. Demand for mortgages dropped sharply during 2022 as the Bank raised interest rates in response to rising inflation, falling to a trough of about 40,000 in January last year. However, they have since recovered to a level last exceeded in August 2022, the month before Liz Truss and Kwasi Kwarteng’s poorly received mini-budget. The Bank said the “effective mortgage rate” – the actual interest paid – on newly drawn mortgages had dipped from 4.84% to 4.76% last month. Analysts said the prospect of further reductions in rates over the coming months would support the housing market and offset any impact from higher taxation in the budget. The investment bank Goldman Sachs expects the MPC to cut rates by a quarter-point at all of its nine scheduled meetings until November next year. Thomas Pugh, an economist at the audit, tax and consulting firm RSM UK, said: “All the factors which are contributing to the broader economic recovery are also positive for the housing market. Lower inflation, higher household incomes, lower interest rates and, until recently at least, recovering consumer confidence will all help to drive housing transactions and prices higher.” Pugh said house prices were about 2% below the record high reached in the summer of 2022, leaving plenty of room for catch-up. “We’re expecting annual price rises of between 4% and 5% by the end of the year.” The Bank said net borrowing by consumers increased by £1.2bn in September – a slightly smaller rise than the £1.4bn recorded in August but in line with the six-month average. Paul Dales, the chief UK economist at Capital Economics, said: “Overall, there’s little evidence that the prospect of tax rises has caused households to become more cautious with their borrowing. “While household borrowing and spending may be a bit softer after the scale of tax rises is revealed in tomorrow’s budget, our central forecast is that the economy expanded in September and will grow by a decent 0.4% or so in the fourth quarter.”