UK mortgage approvals fall to lowest since end of 2023

The number of mortgage approvals made to home buyers has slipped to its lowest level since the end of 2023, figures show, as elevated borrowing and living costs weighed on housing demand.

Some 54,900 mortgages were approved for a house purchase in August, decreasing from 55,900 in July, according to the Bank of England’s latest money and credit data.

It means UK mortgage approvals, which are looked to as an indicator of future borrowing, were their lowest since December 2023, and below the average of about 60,100 over the previous six months.

Furthermore, the Bank found that the number of remortgaging approvals, which capture only remortgaging with a different lender, decreased to 34,000 in August, from 34,600 in July.

The decline in approvals came as the effective interest rate on newly drawn mortgages increased to 4.6% in August, from 4.45% in July.

This reflects the actual interest paid on home loans.

Experts said mortgage approvals falling to a more than two-and-a-half year low signals a slowdown in demand among home buyers.

Katie Clinton, head of financial services advisory at KPMG UK, said: “A further fall in mortgage approvals in August points to affordability pressures continuing to weigh on housing demand, as the shocks from the Iran conflict push up both inflation and mortgage rates.

“Meanwhile, the drop in remortgaging suggests refinancing demand softened, despite many borrowers reaching the end of existing fixed term rates.”

Matt Swannell, chief economic adviser to the Item Club, suggested that home buyers have been deterred by elevated borrowing costs and expectations that the Bank of England could raise interest rates in the months ahead.

“The mortgage market has come under significant pressure since the Middle East conflict intensified earlier this year,” he said.

“Quoted rates on new mortgages have risen from around 4% to 5% over the past six months as financial markets have shifted from expecting interest rate cuts to interest rate hikes.

“We expect the Monetary Policy Committee to raise Bank rate in November and February.

“As a result, mortgage rates are likely to remain close to 5% for the rest of this year and into next and will continue to weigh heavily on mortgage market activity.”

Lucian Cook, head of residential research at Savills, said it marked the fourth month in a row that there have been fewer than 60,000 mortgage approvals.

The Bank of England found that the number of remortgaging approvals decreased to 34,000 in August, from 34,600 in July (Jordan Pettitt/PA)

PA Wire

“The weakness in these numbers reflects the recent volatility in the mortgage markets, which have made it more expensive for people to take on a bigger mortgage,” he said.

“This has been compounded by the lack of housing wealth accumulated by homeowners over the past four years, given the pressure on house prices since September 2022.

“Upsizers, in particular, are putting off plans to move, until they have more confidence in their personal finances and their ability to service more debt.”

The Bank of England’s money and credit report also showed that people’s net borrowing of consumer credit increased to £2.5 billion in August, from £2.1 billion in July.

This was above the previous six-month average of £1.9 billion, with borrowing through credit cards and other forms of credit like personal loans increasing month-on-month.

Julie Palmer, managing partner at advisory group BTG, said rising consumer credit over the summer could mean increased levels of spending.

“However, it is likely to also be a reflection of the rising cost of living as more people use credit to pay for essentials leaving less space for luxuries,” she said.

“This will put retail and hospitality businesses, who have been benefiting from hot weather, on tenterhooks going into the golden quarter.”

Meanwhile, households’ deposits with banks and building societies increased by £4.7 billion in August, following net deposits of £3.8 billion in July, the Bank’s data showed.