UK mortgage approvals fall to five-month low as rate hikes hit demand

July is traditionally busy month for home buying but surge in interest rates has begun to ‘take its toll’

The number of mortgage approvals fell to its lowest level in five months in July, amid fresh evidence of the impact of the sharp increase in borrowing costs on the housing market and the wider economy.

Bank of England figures showed the number of new loans approved but not yet completed decreased from 54,600 in June to 49,400 in July – a drop of 10%.

July is traditionally a busy month for home buying but last month approvals were running 20% below the average for 2022.

Analysts said Threadneedle Street’s 14 successive increases in official interest rates, which has taken them from 0.1% to 5.25% since December 2021, were affecting demand for property and that further weakness in demand would emerge over the coming months.

Andrew Wishart, a property analyst at the consultancy Capital Economics, said the renewed surge in mortgage rates since April had begun to “take its toll. But given the lag between quoted mortgage rates and approvals, the full impact is unlikely to become clear until September.”

Wishart said the July approvals reflected mortgage rates of just below 4.5% in May. “Since then mortgage rates have risen to 5.85%, so further falls in mortgage approvals lie ahead. We suspect that they will drop to around 40,000 again by September, the same level reached after the previous peak in mortgage rates last November.” he said.

Despite the increase in mortgage rates, the monthly bulletins of house prices from Halifax bank and Nationwide building society have detected only modest falls over the past year.

Myron Jobson, a personal finance analyst at the investment platform interactive investor, said: “Buyers should proceed with caution. With home prices and mortgage rates remaining elevated, buyers should be careful to avoid biting off more than they can chew.”

Simon Gammon, the managing partner at the mortgage adviser 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.”

Bank of England data showed net borrowing of consumer credit by individuals decreased to £1.2bn in July, down from £1.6bn in the previous month, with the decline caused by weaker demand for car finance and personal loans. Borrowing on credit cards was broadly unchanged.


Larry Elliott Economics editor

The GuardianTramp

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