The Bank of England’s Money and Credit report for July 2023 shows mixed trends in the mortgage sector.
Net borrowing for mortgage debt by individuals increased to £0.2bn, up from £0.1bn in June. However, gross lending dropped from £20.4bn in June to £18.7bn in July, and gross repayments also decreased from £19.7bn to £19.1bn.
Net approvals for house purchases, a predictor for future borrowing, fell to 49,400 in July, down from 54,600 in June.
Meanwhile, remortgaging approvals slightly increased from 39,100 in June to 39,300 in July.
The effective interest rate on new mortgages increased by 3 basis points to 4.66%, and the rate on existing mortgages rose by 5 basis points to 2.97%.
Reaction
Steve Seal, CEO, Bluestone Mortgages:
“With mortgage repayments outweighing rents for the first time in over 10 years, it’s hardly surprising to see a dip in mortgage approvals. Rising interest rates have pushed up the average two-year fix to nearly 7%, making the lending environment tough to navigate. Looking ahead, affordability will remain a key issue and likely force many would-be and existing borrowers to put their plans on hold.
“For those worried about how they can achieve their homeownership dreams, now more than ever is the time to engage with a mortgage broker who is here to signpost existing and potential borrowers to the best available options. Despite what may appear to be a gloomy outlook, it is the duty of our industry to help people climb onto or up the property ladder and remind them that the homeownership dream can still live on.”
Ben Waugh, managing director at more2life:
“After net consumer credit borrowing hit its highest level in five years in last month’s Money and Credit update, today’s data paints a similar picture. While inflation has started to fall, ordinary borrowers are still under pressure, and this has had a noticeable impact on not only consumer confidence but also on their appetite for borrowing.
“Less funds are being deposited into banks and building societies as people look to repay outstanding borrowing before their fixed rate mortgage deal ends. While these are topline figures behind each mortgage, loan and credit card is someone who is looking to manage their finances as best they can in the current climate.
“Active management is essential and with the current rates in the residential as well as the later life lending market, people need to consider their options well in advance of making any changes. Speaking to a specialist financial adviser is a good start for older borrowers as they will be able to explain their options and help them find the right one for their individual circumstances.”
David White, chief operations officer at Simply Lending:
“This data from the Bank of England confirms exactly what we’re seeing on the ground. We’ve seen a drop of 31% in mortgage approvals for house purchase during July and August to date. 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 clients are opting to consolidate their current position rather than move home during these uncertain times.
“Much of the work we’re dealing with is leaning towards existing homeowners with equity at the expense of first-time buyers, who face a potentially daunting time to jump into the housing market. People are resilient, though, and we expect the first-time buyer sector to recover as the year progresses, especially if house prices come under further pressure.”
Stephen Perkins, managing director at Yellow Brick Mortgages:
“In July and over the summer as a whole, mortgage approvals for house purchase have continued to slow in our experience. This data therefore comes as no surprise. The confidence to buy simply isn’t out there right now.
“Many people seeking to remortgage are having to stay with their existing lender due to affordability and criteria restrictions. Fortunately, as lenders are desperate to hit lending targets, as seen by the recent rate reductions, they are offering very competitive rates for customers to stay with them at present.”
Mike Staton, director at Staton Mortgages:
“July was fairly active but August is always a dead rubber month. As a business, we haven’t struggled but we have seen a significant drop in mortgage applications.
“Typically this is down to children being off school and the summer holidays, with the added problem of unstable interest rates leaving people uncertain about what to do with their mortgage, especially landlords.
“Landlords are seeing some completely devastating stress testing rates that are causing unrealistic rental valuations leading to many landlords being restricted to product transfers, effectively trapped as a buy-to-let mortgage prisoner.”
Darryl Dhoffer, mortgage expert at The Mortgage Expert:
“Both July and August have been a ‘ticking-over’ period for mortgage applications we have written, but overall definitely enquiries for house purchase have dropped in recent months. The rising base rate and economic uncertainty have clearly played a role in that. Remortgage and product transfers applications have seen by far the most activity.
“The new enquiries we have had have mostly been dominated by first-time buyers and expat buy-to-let investors. There have been very few home mover applications or remortgages for home improvements. Better to keep the roof over your head than improve it.”
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial:
“You have more chance of finding Nadine Dorries in mid-Beds than a buyer for your house in today’s market. The property sector continues to falter as rate rises suck all of the confidence out of the market. Sellers are having to slash their prices, and those that don’t are hanging around on property portals like rotting meat in the desert.
“There is a small amount of activity amongst first-time buyers who can snap up bargains currently. Those who have saved for their deposits have the discipline to meet higher mortgage costs. The only way this will turn around is when Andrew Bailey removes his head from the sand and starts reversing his disastrous policy of rate rises.”
Kundan Bhaduri, property developer and portfolio landlord at The Kushman Group
“Though house prices are seeing their largest falls for over a decade, rising mortgage rates and the cost of living crisis have cooled demand among home buyers as a whole. However, falling house prices have provided opportunities for first-time buyers, particularly in regions where affordability is less challenging such as in the North.
“Remortgage activity has remained relatively robust, as homeowners seek to lock into interest rates before further increases. Buy-to-let investors continue to face headwinds, with reduced activity due to measures like the additional stamp duty and changes to mortgage expense offsetting for landlords.”
Clive Read, owner at Goldmanread:
“July was exceptionally busy, but August has been much slower. Higher interest rates are really starting to feed through into the housing market with affordability concerns weighing down heavily on buyers.
“Remortgages remain solid as existing homeowners have little choice but to consider moving their loans to another deal with the same lender. This is especially the case given that lenders’ standard rates are currently averaging around 8%.
“Many lenders are offering attractive rate switch deals and it is this, rather than affordability issues, that is making many borrowers stick with their existing lender. Buy-to-let remains very quiet, although many portfolio landlords are going through a process of incorporating their properties to take advantage of tax breaks.
“First-time buyers remain cautious, as they are entering a market that is very uncertain. We expect the remaining months of 2023 to be quiet, though this could change if inflation starts to fall noticeably.”
Ross McMillan, owner/mortgage advisor at Blue Fish Mortgage Solutions:
“Personally, August has been the best month as a business we have had in 2023, with roughly a 50/50 split between remortgage and new purchase cases. First-time buyers remain very active in Scotland with properties up to £250k still proving popular with competitive closing dates commonplace and 5%-10% above home report valuations considered the norm.
“The middle and top ends of the market, in contrast, are sporadic at best with new buy-to-let business virtually extinct. Existing borrowers are generally opting to stay with their current lenders as – if available – any potential savings from switching are deemed not worthy of the additional underwriting and affordability assessments.
“Typically, the majority are opting for shorter term fixed deals in the hope that lower rates may be available in a couple of years or so. Assuming no disappointing inflation data in the coming weeks, the final quarter of 2023 look likely to continue in a similar relatively settled vein.”
Gareth Davies, director at South Coast Mortgage Services:
“July was incredibly busy with remortgage transactions, driven in no small part by the seemingly endless short-notice rate increases we saw. August has quieter, as you would expect, due to the school holidays. However, as prices come down, demand from first-time buyers is on the up.
“We have seen a handful of first-time buyer purchase cases as well as the usual remortgage work in recent weeks. I predict much of the same for the rest of the year. There will be a smattering of purchase cases but our workload overall looks set to be more remortgage-heavy.”
Graham Cox, founder at Self Employed Mortgage Hub:
“Demand has definitely weakened over the summer. Borrowers were spooked by much higher rates and it’s stalled the market. The good news is that with inflation falling, mortgage rates, whilst still high, are starting to fall again.”
Adam Oldfield, chief revenue officer at Phoebus Software:
“The number of approvals for remortgages in July is a trend that is only going to continue with a huge number of fixed rates deals coming to an end in the next few months.
“As we head into the final months of the year lenders will no doubt be looking to hit their lending targets, which could mean we see some more favourable mortgage deals.
“Although the likelihood of another interest rate rise from the Bank of England is fairly high, the recent fall in house prices may see the number of approvals for house purchase increase, especially if wages manage to keep pace with inflation.
“If, as I suspect, lenders have to fight for business this may add fuel to the fire, and we could see an upturn in the market towards the end of the year.
“Of course, for lenders it will be a juggling act. Hitting lending targets with one eye on long-term affordability, to ensure protection for the most exposed borrowers.
“Recent arrears figures can’t be ignored, they will have to be managed.”
Tomer Aboody, director of property lender MT Finance:
“Lower mortgage approvals in July are disappointing, indicating that there is less confidence in the housing market than seemed to be the case as recently as the previous month.
“Interestingly, the fall in borrowing through other forms of consumer credit including car dealership and personal loans, while borrowing on credit cards remained unchanged, suggests people are being cautious, retrenching and waiting to see what happens with inflation and interest rates.
“With transactions down compared with where we were before the pandemic, some assistance from the Government in order to boost to the market and encourage a pick-up in volumes is now required.”
Emma Hollingworth, managing director of mortgages at MPowered Mortgages:
“Despite recent disruption in the market, and the summer months typically being slower for activity, these latest figures reflect a mortgage landscape that has remained remarkably robust.
“With inflation falling and mortgage rates edging down from their peak, we can expect mortgage approval activity to rise towards the back end of the year.
“However, regardless of the current resilience in the housing market, consumers continue to grapple with elevated living costs.
“With net borrowing of consumer credit figures down slightly, first-time buyers may look to delay their first step onto the property ladder as they address other financial challenges.
“For many, affordability remains the key concern but this is where the value of advisers comes to the forefront.
“Using our AI-driven solutions, including the recently launched CriteriaGPT, we are helping brokers to streamline the mortgage process for all involved, providing homeowners a greater sense of certainty when they most need it.”
Jonathan Samuels, CEO of Octane Capital:
“Mortgage approvals for July were down 9.5% compared to the previous month and this is a considerably larger margin than widely forecast.
“This reduction in market activity is the unfortunate consequence of the Bank of England’s tentative approach to managing inflation and while we’ve seen a consistent string of hikes since the closing stages of 2021, the approach taken simply hasn’t been aggressive enough.
“As a result, the pain being felt by borrowers has been prolonged and this has naturally led to a reduction in appetites where mortgage approvals are concerned.”
Nicholas Christofi, managing director of Sirius Property Finance:
“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, fourteen consecutive base rate increases are now taking their toll with buyer sentiment starting to wane.
“Of course, 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.
“So it will be interesting to see where we stand over the coming months, as we approach what is traditionally a busy time of year in the run up to Christmas.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“Mortgage approvals fell in July as buyers remain concerned as to what’s going on in the wider economy and what they can afford.
“The average rate on new mortgages continued to rise in July, increasing by 3 basis points to 4.66%. The worst of the pain may not be over with the markets expecting the Bank of England to raise the base rate again next month.
“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 coming weeks.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“Although mortgage approvals hit a nine-month high in June, that trend did not continue into July, suggesting economic worries are on borrowers’ minds.
“Cash buyers are more dominant for us in the market at the moment and they are calling the shots.
“Mortgage approvals are a good lead indicator of future market direction with these figures starting to reflect the damaging impact of successive recent interest rate rises.”
