Mortgage approvals and net borrowing fell below recent averages in July as volatile interest rates and economic uncertainty continued to restrain the housing market.
Net mortgage approvals for house purchases declined to 56,100 in July, from an average of about 60,800 during the previous six months, according to the Bank of England’s latest Money and Credit figures.
Net borrowing of mortgage debt by individuals dropped to £4.3 billion, from £7.7 billion in June, and was below the previous six-month average of £5.3 billion.
Approvals for remortgaging rose slightly to 34,500, from 34,100 in June.
Richard Pike, sales and marketing director at Phoebus Software, said: “After June’s improvement there was hope activity was beginning to stabilise, so a reversal in July is disappointing. But it’s important not to view one month in isolation.
“Mortgage demand remains sensitive to affordability and the direction of mortgage rates, both of which have continued to move around in recent months.
“The underlying picture is therefore one of a market that is functioning, but with buyers remaining highly selective about when they commit.
“The real question is whether this weakness persists through the autumn. If approvals continue to fall, it would point to a more sustained loss of momentum.
“If they stabilise and begin to recover, July may prove to have been a temporary setback rather than the start of a wider slowdown.”
Gareth Lewis, deputy chief executive of specialist lender MT Finance, said: “Earlier this year, approval numbers were picking up quite nicely, before dipping in May and now falling again. We are seeing the ramifications of the unstable interest rate environment and the impact this has on transactions.
“There urgently needs to be stimulus for the housing market, with the new prime minister required to do something to encourage transactions and activity, which will benefit the wider economy. Volatile funding rates are the real issue; while everything pointed towards a lower interest rate environment this year, the impact of war in the Middle East has since changed this outlook.”
Damien Burke, head of regulatory practice at banking and credit advisory consultancy Broadstone, said: “The mortgage market lost momentum through July with both net borrowing and approvals falling below their recent averages suggesting that affordability pressures and wider economic uncertainty continue to make prospective buyers cautious.
“The financial markets backdrop remains challenging with UK borrowing costs rising to post financial crisis highs this morning and expectations of further interest rate hikes growing. If these pressures persist, they could feed through into higher mortgage pricing and further weaken activity across the housing market.
“Meanwhile, consumer credit borrowing remains elevated and while this partly reflects resilient demand, it may indicate that some households are increasingly reliant on borrowing as living costs continue to stretch their finances.”
Net consumer credit borrowing increased to £2 billion in July, from £1.9 billion in June. Credit card borrowing fell to £0.9 billion, from £1 billion, while borrowing through other forms of credit, including car dealership finance and personal loans, rose to £1.1 billion from £0.9 billion.
Households increased their money holdings by £3.8 billion during the month. They deposited £2.2 billion into individual savings accounts and £1.1 billion into non-interest-bearing accounts, while withdrawing £3.5 billion from interest-bearing sight accounts.
