07 Sep 23

The Bank of England says net mortgage approvals decreased from 54,600 in June to 49,400 in July, although approvals for remortgaging slightly increased from 39,100 to 39,300 during the same period.

The net mortgage figure was below market expectations of a drop to 51,000.

The BoE said the ‘effective’ interest rate, the actual interest rate paid, on newly drawn mortgages rose by a further three basis points, to 4.66 per cent in July.

The Bank’s own base rate is now at 5.25 per cent and its next rate decision is on September 21.

Net borrowing of consumer credit by individuals fell to £1.2 billion in July from £1.6 billion in the previous month.

The managing director of Sirius Property Finance, Nicholas Christofi, comments: “The latest figures show that mortgage approvals have fallen to their lowest since the start of this year. This suggests that while the market was starting to gain momentum following the turmoil of last September’s mini budget, 14 consecutive base rate increases are now taking their toll with buyer sentiment starting to wane. It’s important to remember that there is a seasonal element at play during the summer holiday period and this could be a contributing factor behind a reduction in market activity.”

And Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “The worst of the pain may not be over with the markets expecting the Bank of England to raise the base rate again. Swap rates, which underpin the pricing of fixed-rate mortgages, and have been exceptionally volatile in the past couple of months, have settled down since the encouraging dip in inflation. A number of lenders have been reducing their fixed rates and borrowers will be hoping others follow suit in coming weeks.”

David White, chief operating officer at Simply Lending, adds: “We’ve seen a drop of 31% in mortgage approvals for house purchase during July and August. However, this has largely been offset by an increase in demand for both remortgages and second charge loans as people react to the situation around them and, in many cases, consolidate unsecured debt. As more lenders release favourable product transfer terms, this was to be expected and we are finding many borrowers are opting to consolidate their current position rather than move home during these uncertain times.”

Finally Ashley Webb, UK economist at Capital Economics, states: “The drag from higher interest rates on bank lending grew further in July, particularly in the housing market. We think this effect will intensify as the Bank of England presses ahead with another 25 basis points interest rate hike, from 5.25 to 5.5 per cent in September and keeps rates there until the second half of 2024. The full impact from the recent surge in mortgage rates is yet to be felt and housing activity and prices have further to fall in the coming months.”

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