In August, mortgage approvals fell to the lowest level in six months as prospects stayed away from the property market and average mortgage costs were approaching 5 per cent.
The Bank of England data showed that the number of new mortgages approved in August, an indicator of future borrowing, dropped from 49,500 to 45,000, the lowest level since February when fears of the US banking system hit the housing market. The drop in approveds was worse than the 48,000 forecast by economists and is less than the average of 67,000 a month recorded before the pandemic.
In August, the mortgage market was roiled by a significant surge in market borrowing costs in the past month due to data showing a surge in wage growth, which is accelerating rapidly in more than twenty years. The risk of interest rates has been settled, and investors expect only one more rise from the Bank of England, stabilizing the mortgage sector and allowing lenders to offer better deals.
In August, separate data showed that the number of house sales fell 16 per cent to 87,010 compared with the same month a year earlier, according to provisional figures from HM Revenue & customs. It was the worst month for house sales since 2020, when the market was dealing with the effects of the coronavirus pandemic.
The effective interest rate paid on the average mortgage rose by 0.16 percent to 4.82 per cent last month. Data released Monday by Moneyfacts showed that the average five-year fixed-term mortgage had fallen below 6 per cent.
The Bank's monetary policy committee kept its base rate stable last week at 5.25 percent, the first no change in borrowing costs since November 2021. Later this year, financial markets are forecasting a peak of 5.5 per cent to be hit and monetary policy will stay at this limited level for most of next year.
The numbers for August show that consumers loaded up more debt, with net borrowing up to £1.6 billion, having been stable at £1.3 billion for the past two months. Economists expected no improvement in net credit last month, with the slight increase suggesting that households may be running out of savings to keep their spending and turn to debt.
The drop in household bank deposits of £350 million after two consecutive monthly increases may suggest that households' finances are becoming more stretched', said Ashley Webb, UK economist at Capital Economics.