In a recent statement, the Bank of England (BoE) revealed a notable decrease in net mortgage approvals, along with a rise in effective interest rates. These developments have raised concerns within the housing and lending sectors, as the central bank prepares for its next rate decision on September 21.
According to the BoE’s data, net mortgage approvals dwindled from 54,600 in June to 49,400 in July. This decline caught the market by surprise, as expectations were for a less dramatic drop to 51,000. However, the figures also revealed a silver lining, with remortgaging approvals inching up slightly from 39,100 to 39,300 during the same period.
Furthermore, the BoE reported that the ‘effective’ interest rate, which represents the actual interest rate paid on newly drawn mortgages, increased by three basis points in July, reaching 4.66 percent. These rising rates come at a time when the Bank’s base rate is currently standing at 5.25 percent.
One key figure in the mortgage industry, Nicholas Christofi, Managing Director of Sirius Property Finance, commented on the situation, stating, “The latest figures show that mortgage approvals have fallen to their lowest since the start of this year. This suggests that while the market was starting to gain momentum following the turmoil of last September’s mini budget, 14 consecutive base rate increases are now taking their toll with buyer sentiment starting to wane. It’s important to remember that there is a seasonal element at play during the summer holiday period and this could be a contributing factor behind a reduction in market activity.”
Mark Harris, Chief Executive of mortgage broker SPF Private Clients, added, “The worst of the pain may not be over with the markets expecting the Bank of England to raise the base rate again. Swap rates, which underpin the pricing of fixed-rate mortgages, and have been exceptionally volatile in the past couple of months, have settled down since the encouraging dip in inflation. A number of lenders have been reducing their fixed rates, and borrowers will be hoping others follow suit in the coming weeks.”
David White, Chief Operating Officer at Simply Lending, pointed out a shift in borrower behaviour, saying, “We’ve seen a drop of 31% in mortgage approvals for house purchase during July and August. However, this has largely been offset by an increase in demand for both remortgages and second charge loans as people react to the situation around them and, in many cases, consolidate unsecured debt. As more lenders release favourable product transfer terms, this was to be expected, and we are finding many borrowers are opting to consolidate their current position rather than move home during these uncertain times.”
Finally, Ashley Webb, UK economist at Capital Economics, warned about the continuing impact of rising interest rates, stating, “The drag from higher interest rates on bank lending grew further in July, particularly in the housing market. We think this effect will intensify as the Bank of England presses ahead with another 25 basis points interest rate hike, from 5.25 to 5.5 percent in September and keeps rates there until the second half of 2024. The full impact from the recent surge in mortgage rates is yet to be felt, and housing activity and prices have further to fall in the coming months.”
As the housing market navigates these challenges, all eyes are on the Bank of England’s upcoming rate decision and its potential repercussions for borrowers and lenders alike.