Mortgage approvals for house purchases fell to their lowest level since December 2023 in August, raising concerns about buyer demand and future sales pipelines.
The Bank of England recorded 54,900 mortgage approvals in August, down from 55,900 in July. The property industry uses mortgage approvals as a gauge of future housing activity, and the latest figure sits well below the six-month average of around 60,100. August also marked the fourth consecutive month with fewer than 60,000 approvals.
Borrowing has become more expensive, with the effective interest rate on newly drawn mortgages increasing from 4.45% in July to 4.6% in August.
Buyers ‘waiting on the sidelines’
Richard Donnell, executive director at Zoopla, said higher mortgage costs were hitting agreed sales. He said: “The latest BoE data shows that rising borrowing costs for home buyers has reduced the demand for mortgages to buy homes. This is feeding through into more buyers waiting on the sidelines and fewer housing sales being agreed.
“Average mortgage rates started the year at 4% and are now over 1% higher while the number of homes for sale continues to increase.
“Mortgage rates are set to remain elevated and there is no sign that buyers are prepared to compromise on what they buy meaning buyers either inject more equity or pay more for monthly mortgage payments to secure a home.”
The Bank of England held Bank Rate at 3.75% this month, with six Monetary Policy Committee members backing no change and three voting to increase the rate to 4%.
Remortgage approvals also fall
Remortgage approvals with a different lender also slipped in August, falling from 34,600 to 34,000.
Katie Clinton, head of financial services advisory at KPMG UK, said affordability continued to weigh on demand. She 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.”
Propertymark CEO Nathan Emerson said uncertainty continued to hit confidence and affordability. He said: “Looking at mortgage borrowing across the year so far, it remains fair to say there have been sizeable challenges, largely driven by global unrest and the direct impact that such uncertainty can have on consumer confidence and affordability.
“It is encouraging to see greater levels of mortgage borrowing starting to return. However, it is disappointing to see overall mortgage and remortgaging approvals dip yet further, clearly pointing towards an economy that remains fluid.”
Upsizers put moves on hold
Lucian Cook, head of residential research at Savills, said mortgage volatility was making it harder for buyers to borrow more. He said: “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.
“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.”
Propertymark also pointed to the Autumn Budget, saying some buyers may delay decisions until the government reveals its measures. Emerson added: “Many prospective buyers have understandably been taking a more cautious approach and waiting to see what measures are announced in the Autumn Budget.”
Meanwhile, net consumer credit increased from £2.1bn to £2.5bn in August, above the previous six-month average of £1.9bn. Households also increased their savings, with deposits with banks and building societies rising by £4.7bn, following a £3.8bn increase in July.
