Mortgage approvals for house purchases in the UK fell to 54,900 in August, their lowest level since December 2023, according to the Bank of England’s latest money and credit data.
The figure was down from 55,900 in July and below the average of about 60,100 recorded over the previous six months. Mortgage approvals are closely watched as an indicator of future borrowing and housing-market activity.
The decline came as the effective interest rate on newly drawn mortgages increased to 4.6% in August, from 4.45% in July. The effective rate reflects the actual interest paid on home loans.
The data also showed that approvals for remortgaging with a different lender fell to 34,000 in August, compared with 34,600 in July.
Experts said the figures pointed to continuing affordability pressures and weaker demand among prospective home buyers.
Katie Clinton, head of financial services advisory at KPMG UK, said the further fall in mortgage approvals showed that affordability pressures were continuing to weigh on housing demand. She also said shocks from the Iran conflict were pushing up both inflation and mortgage rates.
“The drop in remortgaging suggests refinancing demand softened, despite many borrowers reaching the end of existing fixed term rates,” Clinton said.
Matt Swannell, chief economic adviser to the Item Club, said elevated borrowing costs and expectations of potential interest-rate increases from the Bank of England had deterred some buyers.
“The mortgage market has come under significant pressure since the Middle East conflict intensified earlier this year,” he said.
Swannell said quoted rates on new mortgages had risen from around 4% to 5% over the past six months, as financial markets shifted from expecting interest-rate cuts to expecting increases. He said the Item Club expected the Monetary Policy Committee to raise Bank rate in November and February.
As a result, Swannell said mortgage rates were likely to remain close to 5% for the rest of the year and into the following year, continuing to weigh on mortgage-market activity.
Lucian Cook, head of residential research at Savills, said August marked the fourth consecutive month in which mortgage approvals had remained below 60,000.
He attributed the weakness to recent volatility in mortgage markets, which had made it more expensive for people to take on larger mortgages. Cook also said the lack of housing wealth accumulated by homeowners over the past four years, amid pressure on house prices since September 2022, had compounded the situation.
“Upsizers, in particular, are putting off plans to move, until they have more confidence in their personal finances and their ability to service more debt,” Cook said.
The Bank of England’s report also showed that net consumer-credit borrowing increased to £2.5 billion in August, from £2.1 billion in July. The figure was above the previous six-month average of £1.9 billion, with borrowing through credit cards and other forms of credit, including personal loans, increasing month on month.
Julie Palmer, managing partner at advisory group BTG, said the rise in consumer credit over the summer could indicate higher spending. She added that it could also reflect the rising cost of living, as more people used credit to pay for essentials, leaving less money for non-essential purchases.
Palmer said this would leave retail and hospitality businesses that had benefited from hot weather facing uncertainty going into the golden quarter.
At the same time, households increased their deposits with banks and building societies by £4.7 billion in August, following net deposits of £3.8 billion in July.
