UK mortgage approvals fall to lowest in five months as interest rate hikes take toll

Property market hit as fewer people are able to pass affordability test

Mortgage approvals: People walk past an Estate Agents in Maidenhead town centre, Berkshire
The Bank of England said the number of mortgage approvals is the lowest since February. Photo: Maureen McLean/Alamy Live News

UK mortgage approvals fell to their lowest level in five months in July, down from 54,600 in June to 49,400 as fewer people were able to afford a home.

According to the Bank of England (BoE) on Wednesday it was the lowest figure since February and below economists expectations of a drop to 51,000 as rising interest rates continued to dampen demand. The figures were also down almost 22% on a year earlier.

The data showed that the number of approvals for remortgaging increased slightly during the period from 39,100 to 39,300.

Threadneedle Street added that the “effective” interest rate, which is the actual interest rate paid, on newly drawn mortgages rose by a further three basis points, to 4.66%.

It comes amid a warning from economists that UK house prices will fall in the coming months as the full impact of high rates takes effect.

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"The drag from higher interest rates on bank lending grew further in July, particularly in the housing market," Ashley Webb, UK economist at Capital Economics, said.

"We think this effect will intensify as the Bank of England presses ahead with another 25 basis points interest rate hike, from 5.25% to 5.5%, in September and keeps rates there until the second half of 2024.

"The full impact from the recent surge in mortgage rates is yet to be felt and housing activity and prices have further to fall in the coming months."

The UK central bank has raised interest rates 14 consecutive times in an effort to reduce runaway inflation, which stood at 6.8% in July, above its 2% target.

The move, which was widely expected by economists, means UK interest rates are now at a fresh 15-year high.

The hike also meant further pain for mortgage rates. Higher mortgage rates have ready started to weigh on the UK property sector, where prices have fallen by the most since 2009.

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Paul Heywood, chief data and analytics officer at Equifax UK, a credit scoring company, said: "For many consumers, housing costs will likely continue to top their list of money worries, as rate rises push the number of mortgages with a monthly repayment above £1,000 up by 28% year-on-year according to the latest Equifax figures.

"These increasing costs combined with sky-high costs for everyday goods will mean wallets remain squeezed for the foreseeable future."

However, Nicholas Christofi, managing director of Sirius Property Finance, said that it was important to remeber that there was a seasonal element at play during the summer holiday, which "could be a contributing factor behind a reduction in market activity."

He added: "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."

The Bank of England also revealed on Tuesday that net borrowing of consumer credit by individuals fell to £1.2bn in July, down from £1.6bn in the previous month.

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