Mortgage approvals dip as ‘cautious sentiment’ takes hold

The number of mortgage approvals fell by nearly 10% in July marking the lowest figure since the start of this year, new Bank of England data has revealed.

Specifically, net mortgage approvals decreased from 54,600 in June to 49,400 in July (-9.5%), which comes after an upswing in approvals during the previous month.

On the other hand, approvals for remortgaging slightly increased from 39,100 to 39,300 during the same period. Net borrowing of mortgage debt by individuals increased for the third consecutive month to £0.2 billion in July, from £0.1 billion in June.

Source: Bank of England

The effective interest rate on newly drawn mortgages rose by a further three basis points to 4.66% in July.

This, says Charlotte Nixon, mortgage expert at Quilter, illustrates a decelerating market amidst the traditionally busier summer period driven by a “cautionary approach” to new borrowing:

“A decrease in mortgage approvals and only a slight uptick in remortgaging activity in July further underscores this cautious sentiment.”

Nixon continued:

“While the ‘effective’ interest rate on newly drawn mortgages experienced only a modest increase, the broader implications for the housing market are clear.

The Bank of England may be poised to adjust rates again in its next meeting. Amidst inflationary pressures, the prospect of additional rate hikes later this year cannot be entirely dismissed. The intricate dance of interest rates undeniably casts its shadow over property transactions, which will feed through to house prices.”

CEO of Octane Capital, Jonathan Samuels, pointed out that 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.”

Managing Director of Sirius Property Finance Nicholas Christofi added:

“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.”

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