Mortgage approvals for house purchases fell sharply in July as activity dropped below recent levels, according to the latest Bank of England figures.
There were 56,100 approvals for house purchase during the month, down from an average of around 60,800 over the previous six months.
Net mortgage borrowing also weakened, falling from £7.7 billion in June to £4.3 billion in July. This was below the previous six-month average of £5.3 billion.
The figures add to evidence of a softer housing market over the summer, with Nationwide reporting subdued house price growth and HMRC’s latest transaction figures showing seasonally adjusted residential completions falling 2% between June and July.
REMORTGAGING EDGES HIGHER
While approvals for new purchases declined, remortgage activity moved in the opposite direction.
Approvals for remortgaging with a different lender increased from 34,100 in June to 34,500 in July.
The figures come against a more challenging backdrop for borrowers, with geopolitical uncertainty and higher market interest rates putting upward pressure on mortgage pricing.
Nationwide’s latest house price index also highlighted the impact of higher borrowing costs, noting that some of the improvement in underlying housing affordability created by earnings growth outpacing house price inflation has been offset by rising mortgage rates.
CONSUMER BORROWING RISES
The Bank’s figures also show households increased their use of consumer credit during July.
Net consumer credit borrowing rose from £1.9 billion in June to £2 billion, slightly above the £1.9 billion average recorded over the previous six months.
Credit card borrowing eased from £1 billion to £900 million, but borrowing through other forms of consumer finance, including personal loans and car finance, increased from £900 million to £1.1 billion.
Households also continued to put money into savings, depositing £2.2 billion into ISAs and £1.1 billion into non-interest-bearing accounts.
However, they withdrew £3.5 billion from interest-bearing instant-access accounts during the month.
Overall sterling lending to private-sector companies and households fell sharply, with the net flow dropping to zero in July following £39.1 billion in June.
INDUSTRY REACTION
Jason Tebb, President of OnTheMarket, says: “Approvals for house purchases, a more useful measure of market activity than prices as they indicate future borrowing, fell in July and remain below the previous six-month average as ongoing political and economic uncertainty impacts buyer and seller decision-making.
“With the effective interest rate on newly drawn mortgages increasing to 4.45% in July from 4.35% in June, the impact of higher borrowing costs is also making itself felt.
“The Bank of England’s decision to hold base rate steady at recent meetings will help steady concerns if this approach continues into the autumn.”
BUDGET CLARITY
Nathan Emerson, CEO at Propertymark, says: “Recent months have seen lower levels of mortgage approvals and lending, reflecting continued pressure on household finances and caution around moving home.
“With the Autumn Budget due next month, many people may be holding back on major housing decisions until there is greater economic clarity, particularly groups such as first-time buyers, for example.
“Across the year, we have seen ambition across all nations regarding the delivery of new sustainable homes, alongside the infrastructure needed to support new developments.
“As the year draws to a close, it would be encouraging to see mortgage approvals and net lending find a firmer footing. However, this is likely to remain closely aligned with the wider global economy.”
BUYER CHOICE
Nick Leeming, Chairman of Jackson-Stops, says: “The fall in mortgage approvals from 58,200 to 56,100 reflects the volatility in mortgage pricing seen during July, as changing inflation and interest-rate expectations affected the confidence and affordability calculations of some buyers.
“However, the figure should not be taken as a complete indication of the market entering the autumn. Our research found that 8% of owner-occupiers in England are planning to move or are already doing so, demonstrating a meaningful pool of underlying demand.
“With the summer holiday period drawing to a close and greater clarity around property taxation due in the Budget, there is scope for more of those plans to translate into activity over the coming months.
“Buyers continue to benefit from considerable choice; sellers who respond to current market evidence will be best placed to capture that demand.
“Realistic pricing does not mean leaving value on the table; it means creating the conditions for committed, finance-ready buyers to compete.”
ECONOMIC AND POLITICAL UNCERTAINTY
Jeremy Leaf, north London estate agent and a former RICS Residential Chairman, says: “The number of enquiries is increasing slowly and certainly better than a few months ago but not nearly at the same pace as this time last year.
“We are hoping that demand will increase now that the holidays are behind us and buyers can take advantage of better affordability, with salaries increasing faster than house prices despite the increase in mortgage costs since the start of the year.
“Approvals are a good indicator of activity over the next three months at least and these suggest buyers and sellers are cautious about prospects while economic and political factors remain so uncertain.”
MARKET STIMULUS NEEDED
Gareth Lewis, Deputy CEO of specialist lender MT Finance, says: “Earlier this year, approval numbers were picking up quite nicely, before dipping in May and now falling again. We are seeing the ramifications of the unstable interest rate environment and the impact this has on transactions.
“There urgently needs to be stimulus for the housing market, with the new prime minister required to do something to encourage transactions and activity, which will benefit the wider economy.
“Volatile funding rates are the real issue; while everything pointed towards a lower interest rate environment this year, the impact of war in the Middle East has since changed this outlook.”
GEOPOLITICAL TENSIONS
Hina Bhudia, Partner, Knight Frank Finance, says: “Geopolitical tensions and elevated energy prices pushed mortgage rates higher during the summer, which has weighed on demand in the housing market.
“Leading fixed rates have been broadly stable in recent weeks, with two-year fixed rates as low as 4.45%, but we’d need to see those rates fall closer to four before a more sustained recovery takes hold.
“That looks unlikely in the near-term, given the renewed hostilities in the Middle East. Speculation ahead of the Budget presents another risk.
“In previous years, reports of potential changes to property taxation have prompted buyers to put plans on hold. This year has been quieter, but speculation regarding the contents of the Budget will only rise as we move through September.”
