There were further signs of a slowing housing market yesterday when the Bank of England released its latest mortgage data, revealing that home loan approvals fell more than expected.

The number of mortgage approvals dropped to its lowest level in five months last month, as the sharp rise in borrowing costs continued to adversely affect the housing market and the wider economy.

Bank of England data revealed the number of new loans approved but not yet completed fell from 54,600 in June to 49,400 in July, although approvals for remortgaging increased marginally from 39,100 to 39,300 during the same period.

The 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 3 basis points, to 4.66% in July.

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

Industry reactions:

Frances McDonald at Savills commented: “The mortgage approval numbers for July come as no surprise given the higher mortgage rates we witnessed throughout much of June. Since then, mortgage lenders have been reducing their rates, despite a further rise in Bank base rate at the beginning of August. This suggests we can expect some continued easing of affordability pressures, bringing a degree of certainty back to the housing market.

“Indeed, agreed sales during the first 7 months of the year remained relatively robust (only -8.4% below the 2018-19 average for the same period according to TwentyCi) highlighting that the market has become more driven by cash and equity rich buyers. This means that established prime markets most synonymous with these buyers will likely continue to be some of the strongest performers over the coming months.”

Jason Tebb, CEO of OnTheMarket, said: “With approvals for house purchases, an indicator of future borrowing, dipping in July, buyers remain cautious in light of consecutive interest rate rises and the continued high cost of living.

“Inflation is moving in the right direction but further rate rises can’t be ruled out, impacting the affordability of those relying on mortgages.

Nevertheless, those who are committed to moving are getting on with it regardless, with our own data for July indicating that sentiment remains remarkably stable. However, buyers are increasingly price-sensitive, so as we head into autumn it is essential sellers come to the market at a realistic and achievable asking price in order to ensure a timely sale.”

Simon Gammon, the managing partner at Knight Frank Finance, said: “Mortgage rates only steadied and began easing during the final 10 days of the month, which has helped to improve sentiment, but only to a point.”

Clare Beardmore, director at Legal & General Mortgage Club, commented: “In last month’s update, net consumer credit borrowing hit its highest peak in five years, and today’s data is driven by similar economic currents. Inflation is falling, but the overall landscape is the same. Consumers are still feeling the pinch, and so many may choose to save rather than take their first steps onto the property ladder.

“As elevated rates persist, many current homeowners may rush to pay outstanding debt before their fixed terms end. Others may consider a product transfer to bypass the usual underwriting process and cut the costs ordinarily associated with remortgaging. If nothing else, current homeowners and first-time buyers alike should seek the guidance of a professional adviser to access the most suitable range of mortgage and refinancing options.”

Adam Oldfield, chief revenue officer at Phoebus Software, remarked: “The number of approvals for remortgages in July is a trend that is only going to continue with a huge number of fixed rates deals coming to an end in the next few months.  As we head into the final months of the year lenders will no doubt be looking to hit their lending targets, which could mean we see some more favourable mortgage deals.

“Although the likelihood of another interest rate rise from the Bank of England is fairly high, the recent fall in house prices may see the number of approvals for house purchase increase, especially if wages manage to keep pace with inflation. If, as I suspect, lenders have to fight for business this may add fuel to the fire, and we could see an upturn in the market towards the end of the year.  Of course, for lenders it will be a juggling act.  Hitting lending targets with one eye on long-term affordability, to ensure protection for the most exposed borrowers.  Recent arrears figures can’t be ignored, they will have to be managed.”

Steve Seal, CEO, Bluestone Mortgages, commented: “With mortgage repayments outweighing rents for the first time in over 10 years1, it’s hardly surprising to see a dip in mortgage approvals. Rising interest rates have pushed up the average two-year fix to nearly 7%, making the lending environment tough to navigate. Looking ahead, affordability will remain a key issue and likely force many would-be and existing borrowers to put their plans on hold.

“For those worried about how they can achieve their homeownership dreams, now more than ever is the time to engage with a mortgage broker who is here to signpost existing and potential borrowers to the best available options. Despite what may appear to be a gloomy outlook, it is the duty of our industry to help people climb onto or up the property ladder and remind them that the homeownership dream can still live on.”

Jonathan Samuels, CEO of Octane Capital, said: “Mortgage approvals for July were down 9.5% compared to the previous month and this is a considerably larger margin than widely forecast.

“This reduction in market activity is the unfortunate consequence of the Bank of England’s tentative approach to managing inflation and while we’ve seen a consistent string of hikes since the closing stages of 2021, the approach taken simply hasn’t been aggressive enough.

“As a result, the pain being felt by borrowers has been prolonged and this has naturally led to a reduction in appetites where mortgage approvals are concerned.”

Nicholas Christofi, managing director of Sirius Property Finance, commented: “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, fourteen consecutive base rate increases are now taking their toll with buyer sentiment starting to wane.

“Of course, 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. So it will be interesting to see where we stand over the coming months, as we approach what is traditionally a busy time of year in the run up to Christmas.”

Ben Waugh, MD at more2life, added: “After net consumer credit borrowing hit its highest level in five years in last month’s Money and Credit update, today’s data paints a similar picture.  While inflation has started to fall, ordinary borrowers are still under pressure, and this has had a noticeable impact on not only consumer confidence but also on their appetite for borrowing.

“Less funds are being deposited into banks and building societies as people look to repay outstanding borrowing before their fixed rate mortgage deal ends.  While these are topline figures behind each mortgage, loan and credit card is someone who is looking to manage their finances as best they can in the current climate.

“Active management is essential and with the current rates in the residential as well as the later life lending market, people need to consider their options well in advance of making any changes.  Speaking to a specialist financial adviser is a good start for older borrowers as they will be able to explain their options and help them find the right one for their individual circumstances.”