Nikka Sulton

Mortgage approvals for house purchases have fallen to their lowest level since late 2023, according to the latest figures from the Bank of England.

The number of mortgages approved for home purchases dropped from 55,900 in July to 54,900 in August. The figure is also below the six-month average of around 60,100 approvals.

Mortgage approvals are closely watched because they can provide an indication of future activity in the housing market.

The latest figures suggest that higher borrowing costs and pressure on household finances are continuing to affect demand from potential buyers.

Remortgaging Activity Also Falls

The Bank of England also recorded a decline in approvals for remortgaging with a different lender.

These approvals fell from 34,600 in July to 34,000 in August.

The reduction came as the effective interest rate on newly drawn mortgages increased. The rate rose from 4.45% in July to 4.6% in August, reflecting the actual interest being paid on newly issued home loans.

For borrowers coming to the end of fixed-rate deals, the cost of refinancing remains an important consideration.

Higher Mortgage Costs Weigh On Buyers

The fall in approvals comes against a backdrop of continued uncertainty around borrowing costs.

Katie Clinton, head of financial services advisory at KPMG UK, said the latest figures showed affordability pressures were still affecting housing demand.

She also pointed to the impact of higher inflation and mortgage rates following developments in the Middle East.

Matt Swannell, chief economic adviser to the Item Club, said buyers had been discouraged by the cost of borrowing and expectations that interest rates could rise further.

Quoted mortgage rates have moved higher over recent months as financial markets have changed their expectations around future Bank of England decisions.

Swannell said mortgage rates could remain close to 5% if interest rate increases are introduced, which could continue to weigh on activity in the mortgage market.

Buyers Continue To Hold Back

The latest data marks the fourth consecutive month in which mortgage approvals have remained below 60,000, according to Savills head of residential research Lucian Cook.

He said volatility in mortgage markets had made it more expensive for people looking to take on larger loans.

This could be particularly relevant for homeowners looking to move into a more expensive property. Higher mortgage payments can make upsizing less attractive, particularly when households are uncertain about their future finances.

House prices have also come under pressure in recent years, limiting the amount of housing wealth some homeowners have built up.

As a result, some potential movers may choose to delay their plans until they have greater confidence in their ability to take on additional debt.

Consumer Borrowing Moves Higher

The Bank’s latest Money and Credit data also showed that consumer borrowing increased during August.

Net consumer credit borrowing reached £2.5 billion, up from £2.1 billion in July and above the previous six-month average of £1.9 billion.

Both credit card borrowing and other forms of consumer credit, including personal loans, increased during the month.

Julie Palmer, managing partner at advisory group BTG, said the rise could indicate stronger consumer spending.

However, she also suggested that some households may be turning to credit to cover everyday costs as living expenses remain high.

If more consumers are using credit for essentials, there may be less money available for discretionary spending such as retail and hospitality.

Household Savings Increase

Despite the rise in consumer borrowing, households also added more money to their bank and building society accounts during August.

Deposits increased by £4.7 billion, compared with £3.8 billion in July.

The figures provide a mixed picture of household finances, with savings increasing while consumer credit use also rose.

For the housing market, however, mortgage activity remains under pressure.

The fall to 54,900 approvals suggests that higher mortgage costs and affordability concerns are continuing to make buyers more cautious.

What Does This Mean For The Housing Market?

Mortgage approvals are an important indicator of future housing activity, so the latest decline could point to a quieter period for the property market.

Potential buyers are facing higher borrowing costs, while existing homeowners considering a move may also be reluctant to take on larger mortgages.

For landlords and property investors, changes in mortgage rates can also affect the cost of financing and the returns available from new purchases.

Until borrowing costs become more predictable, buyers and investors may continue to take a cautious approach to new mortgage commitments.