- Mortgage Approvals in the UK Drop Nearly 10% in July
- Rising Interest Rates and Cost of Living Crisis Impact Housing Market
- Complete Effects of Rate Increases Yet to Be Felt
The Bank of England’s July figures are worse than many economists had anticipated. Experts have cautioned that the complete impact of recent rate hikes has yet to be felt.
According to new data from the Bank of England, mortgage approvals dropped by nearly 10% last month.
From 54,600 in June to 49,400 in July, the net decrease is a five-month low and worse than anticipated. A survey of economists predicted that the number would be approximately 51,000.
It follows a series of figures from lenders and real estate companies indicating that the housing market is decelerating.
On Wednesday morning, the leading property website Zoopla reported that the United Kingdom was on track for approximately one million house and apartment sales by the end of the year, the lowest level since 2012.
Experts say rising interest rates and the cost of living crisis make housing unaffordable for many.
The monthly money and credit report published by the Bank of England on Wednesday also revealed that the quantity of money borrowed by consumers fell to £1.2bn in July, a five-year low from June’s record high.
In the same month, households deposited an additional £0.4bn with banks and building societies, compared to £3.8bn in June. According to commentators, this indicates that individuals’ finances are becoming increasingly constrained.
In July, net mortgage debt financing increased for the third consecutive month to £0.2bn, while approvals for remortgaging rose from 39,100 to 39,300.
Moneyfacts reports that the average two-year fixed mortgage rate is presently 6.72 percent, while the five-year rate is 6.21 percent.
According to experts, however, the complete effects of the latest increases have yet to be felt.
The Bank of England announced that freshly issued mortgages had a “effective” interest rate of 4.66 percent in July.
Andrew Wishart, senior property economist at Capital Economics, stated, “The decline in mortgage approvals to a five-month low in July demonstrates that the renewed increase in mortgage rates since April has begun to have an effect”.
Due to the latency between quoted mortgage rates and approvals, the full impact may not be visible until September.
“It takes two to three months for changes in quoted mortgage rates to affect housing market activity. So mortgage approvals will continue to decline shortly.”
Alice Haine, a personal finance analyst at Bestinvest, stated, “Mortgage lending is likely to remain weak over the next few months as buyer demand and spending power continue to take a beating from rising interest rates and expensive living expenses.
“Although average mortgage rates have softened since their July peak, this will do little to alleviate the stress and anxiety of new buyers frantically attempting to secure their first deal or those looking to refinance who are confronted with significantly higher monthly payments.
As affordability concerns worsen, property prices will rise, forcing sellers to market their homes more aggressively to sell.
