Mortgage approvals fell to 45,400 in August, the lowest level in six months” as high mortgage rates caused major affordability challenges for buyers.
This is the latest sign that the 14 increases in UK interest rates since December 2021 have hit demand.
Net approvals for remortgaging, which capture remortgaging with a different lender, also saw a significant decline from 39,300 to 25,000 during the same period, as more homeowners stuck with their existing lender rather than switch to a new provider to avoid affordability checks, an expert explained. This is the lowest level since the lowest since July 2012.
The interest rate on newly drawn mortgages increased by another 16 basis points, from 4.66 percent to 4.82 percent.
This decline in mortgage approvals signals that mortgage lending is likely to remain weak in the final months of this year as cost-of-living pressures and high borrowing costs make it harder for buyers to secure the homes they want.
However, an expert suggests there is still “a hint of optimism” as estate agents report a rise in enquiries.
Alice Haine, Personal Finance Analyst at Bestinvest explained the Bank of England’s decision to pause interest rate hikes this month for the first time since December 2021, means interest rate expectations have dramatically improved and with that the outlook for mortgage rates.
While a headline interest rate of 5.25 percent is still high when compared to the lows experienced for many years until the aftermath of the pandemic, the stability raises hopes the BoE’s tightening cycle may be at or near the peak.
She continued: “The drag from high-interest rates will continue to have repercussions in the mortgage market for some time to come, largely because most borrowers are on fixed-rate products with many still yet to emerge from the cheap deals they secured before the BoE began its aggressive rate hiking cycle.”
“Interest rates on newly drawn mortgages rose by 16 basis points in August despite inflation continuing to ease.
“The good news for first-time buyers and those refinancing is that softening prices and a drop in average mortgage rates from their July peak raises the likelihood of securing a better deal as the mortgage war between lenders looking to attract new business heats up.”
The mortgage affordability crunch may be easing but borrowing costs are expected to remain at high levels for some time, putting further downward pressure on the housing market.
Net borrowing of mortgage debt by individuals saw an increase from £0.2 billion in July to £1.2 billion in August. This was the fourth consecutive monthly increase in mortgage borrowing and the highest since January 2023.
