In August, UK lenders approved 64,900 mortgages, the highest figure since the “mini-budget” crisis during Liz Truss’s tenure as prime minister, according to the Bank of England (BoE).
Despite this increase in mortgage approvals, the average interest rate on newly issued mortgages continued to rise, reaching 4.84% in August, up slightly from 4.81% in July. This marks the highest rate in two years, as noted in the BoE’s Money and Credit report.
The rise in mortgage approvals suggests that the UK housing market is experiencing a gradual recovery. This renewed activity comes in the wake of the Bank of England’s decision to reduce interest rates in August, the first rate cut since 2020. The rate cut has helped to alleviate some pressure on borrowers, making it slightly more affordable for potential buyers to secure a mortgage, even as broader economic challenges persist.
In August, net mortgage approvals for house purchases increased to 64,900, up from 62,500 in July. This marked the highest number of approvals since the “mini-budget” crisis under former Prime Minister Liz Truss. The data highlights a growing confidence among buyers and lenders alike, despite the fact that interest rates remain elevated compared to pre-pandemic levels.
The remortgaging market also saw a boost during this period. Approvals for remortgaging jumped from 25,200 in July to 27,200 in August, indicating that many homeowners are seeking to renegotiate their mortgage terms in response to changing economic conditions. This surge is likely driven by borrowers looking to lock in more favourable deals before any potential future rate changes.
Despite these positive developments, challenges remain, as the effective interest rate on newly drawn mortgages edged up to 4.84% in August, the highest in two years. While this increase may deter some buyers, the overall trend points towards a more resilient housing market, with lenders adjusting their offerings to respond to both market conditions and consumer demand.
Andrew Montlake, managing director at mortgage adviser Coreco, remarked on the unexpected surge in mortgage demand during August. He noted that despite the typical summer slowdown, buyers were eager to enter the market, spurred on by lower mortgage rates and a desire to secure favourable deals ahead of potential economic uncertainty tied to the upcoming budget. Montlake also predicted a busy end to 2024, driven by this increased activity.
Earlier in the week, mortgage lender Nationwide reported a 3.2% annual increase in British house prices for September, marking the most significant rise since November 2022. This surge reflects growing confidence in the housing market as buyers continue to respond to more competitive mortgage offers.
Alice Haine, a personal finance expert at Bestinvest, highlighted that while mortgage rates have improved and incomes have risen, UK households are still feeling financial pressure. The Bank of England’s recent interest rate cut, coupled with the prospect of additional rate reductions later this year, has provided some relief for buyers, boosting activity in the property market.
Overall, the combination of lower borrowing costs and steady income growth has begun to ease affordability challenges for many buyers. This shift is helping to revitalise the residential property market, with many anticipating a strong finish to the year as more favourable conditions encourage increased transactions.
“The impact of recent changes has yet to be fully felt in the mortgage market, as the effective rate on newly issued mortgages rose slightly to 4.84% in August. This increase by three basis points indicates that financial pressures from the past few years still linger for many borrowers.”
In terms of household borrowing, the Bank of England (BoE) reported a modest rise in consumer credit during August. Net borrowing by individuals climbed to £1.3bn, up from £1.2bn in July. The rise was mainly driven by an increase in net borrowing through consumer credit options like personal loans and car dealership financing, according to the BoE’s report.
The annual growth rate for all consumer credit, including credit cards, overdrafts, and other loans, slowed slightly to 7.6% in August, compared to 7.8% in July. This suggests a gradual easing of growth in household borrowing, though levels remain elevated.
Meanwhile, UK households increased their deposits with banks and building societies, adding £7.3bn in August, up from £5.9bn in July. This indicates a cautious approach to savings as financial uncertainties persist.
The Bank of England’s report highlighted a rise in borrowing by larger businesses, with the annual growth rate increasing from 1.7% in July to 2.9% in August. In contrast, borrowing by small and medium-sized enterprises (SMEs) remained largely unchanged, with a growth rate of -4%, signalling ongoing challenges for smaller businesses.
Alice Haine, a personal finance expert at Bestinvest, cautioned that accumulating too much credit too quickly can negatively impact credit scores and lead to unmanageable debt. She also noted that workers are facing a higher tax burden, with many falling into higher tax brackets due to frozen or reduced personal tax allowances. The situation may become even more challenging, as Chancellor Rachel Reeves is expected to introduce further tax increases in her upcoming 30 October budget.
Haine advised individuals with credit card debt or large overdrafts to take action to reduce their financial liabilities. Strategies like cutting down on non-essential spending, transferring high-interest debts to 0% balance transfer cards, and communicating with creditors about financial difficulties can help ease the strain. Additionally, she encouraged people to build an emergency savings fund to cover unexpected expenses, which can provide a financial safety net during uncertain times.
Her advice underscores the importance of taking proactive steps to manage debt and stay financially resilient, especially as borrowing costs remain high and potential tax changes loom on the horizon.
Download NOW
4 Simple Steps To Becoming Wealthy Through Property