Mortgage approvals drop in August as borrowing costs rise – BoE

“Despite some of the green shoots of economic recovery we have seen through the year, affordability pressures are clearly still biting as households head towards another challenging winter.

“The sharp rise in consumer credit borrowing, particularly on credit cards, suggests more households are leaning on credit to absorb everyday cost pressures.

“For lenders, the priority must be to identify signs of financial strain as early as possible and ensure borrowers have access to appropriate support and flexibility before temporary affordability pressures become more serious.”

Katie Clinton, head of financial services advisory at KPMG UK: 

“A further fall in mortgage approvals in August points to affordability pressures continuing to weigh on housing demand, as the shocks from the Iran conflict push up both inflation and mortgage rates. 

“Meanwhile, the drop in remortgaging suggests refinancing demand softened, despite many borrowers reaching the end of existing fixed term rates.

“The rise in borrowing comes alongside a two-year high in consumer confidence, driven by a better outlook for personal finances and economic conditions. 

“However, with persistently high inflation squeezing disposable incomes, stronger borrowing may also reflect continued affordability challenges pushing people to credit to get by.

“With inflation expected to rise in the coming months and as households head towards the traditionally busy pre-Christmas spending period, pressure on budgets could intensify. 

“It will be particularly important for lenders to engage early in response to signs of financial strain.”

Jason Tebb, president of OnTheMarket: 

“Perhaps unsurprisingly, given the distractions of the particularly hot summer, approvals for house purchases dipped again in August, following July’s fall. 

“They remain below the previous six-month average as ongoing political and economic uncertainty also has an impact on buyer and seller decision-making.

“With the effective interest rate on newly drawn mortgages also increasing again, to 4.60 per cent in August from 4.45 per cent in July, the impact of higher borrowing costs is making itself felt. 

“The Bank of England’s decision to hold base rate steady at recent meetings will help calm concerns assuming this approach continues into the autumn.

“The introduction of a government-backed scheme to help first-time buyers in the budget could provide some much-needed impetus for the housing market, although indications show it would be restricted to new homes only. Nonetheless,we await the details with interest.”

Mark Harris, chief executive of SPF Private Clients: 

“Mortgage approvals fell again in August and remain below the six-month average, illustrating the concerns and difficulties facing buyers. It is hoped that the government scheme which is being introduced in the budget will give the sector some welcome stimulus, and encourage first-time buyers – who are so important to the overall health of the market – to move.

“The effective interest rate paid on new mortgages jumped again to 4.60 per cent while the rate on the outstanding stock of mortgages edged up to 4 per cent. 

“On the ground, some lenders have been increasing pricing in response to volatility in Swap rates, which underpin the pricing of mortgages. 

“However, Swap rates have flattened in recent days and the hope is that this trend will persist, with mortgage pricing settling down.

“Borrowers who need a mortgage in coming months should consider locking into a product as soon as they can to protect themselves from potential rate rises in the short term.

“Remortgaging numbers dipped slightly, suggesting that borrowers may be sticking with their existing lender for ease rather than remortgaging to a new one. 

“However, it is always worth checking what else is available on the market, using a whole-of-market broker, rather than assuming your lender is offering the best option.”

Alex Beavis, interim director of banking at LHV Bank: 

“That Brits are succeeding in putting more money aside is hugely encouraging. Household budgets are under strain, with inflation rising once more, so it would be easy to see saving become less achievable. 

“However, last week GfK’s Consumer Confidence Barometer hit a two-year high, with people becoming slowly more confident about their own financial prospects. 

“It may also be that they are acting now in order to build an emergency fund – ONS research this year found that one in four adults could not afford an unexpected £850 bill, while our own study suggested that the majority (57%) of savers could only cover three months or less of essential costs, despite saving money to cover an emergency.

“However, saving more does not automatically mean people are seeing an adequate return for their efforts. 

“With bank base rate expected to increase in the months ahead, savers should be able to secure an improved deal on their balances, but that will only happen if they are diligent in shopping around and ensuring they are securing a competitive return on their savings, rather than putting up with mediocre interest from accounts which have been left behind. 

“It’s not enough to be disciplined in saving money on a regular basis – you will only truly see the benefit if you put the same level of effort into determining where to save your money.”

Nathan Emerson, chief executive at Propertymark: 

“Looking at mortgage borrowing across the year so far, it remains fair to say there have been sizeable challenges, largely driven by global unrest and the direct impact that such uncertainty can have on consumer confidence and affordability.

“It is encouraging to see greater levels of mortgage borrowing starting to return. However, it is disappointing to see overall mortgage and remortgaging approvals dip yet further, clearly pointing towards an economy that remains fluid.

“With household finances continuing to face pressure, it is sensible to remain open-minded about the future direction of consumer borrowing and the wider housing market.

“Many prospective buyers have understandably been taking a more cautious approach and waiting to see what measures are announced in the Autumn Budget. 

“Any initiatives that help support first-time buyers and encourage activity across the housing market could provide valuable momentum for those looking to make their next move.”

Richard Pike, sales and marketing director at Phoebus Software:

“A fall in mortgage approvals would suggest the tentative improvements seen over the summer has lost momentum. Affordability remains a significant constraint for buyers, while uncertainty around interest rates continues to make households cautious about taking on new borrowing.

“However, one month’s decline does not necessarily point to a wider slowdown. The market remains active, but buyers are clearly being selective about when they commit, with mortgage rates and household finances continue to influence purchasing decisions.

“The autumn figures will now be particularly important. If approvals continue to fall, it would point to a more sustained weakening in demand. If they stabilise and recover, this month’s decline may prove to have been another short-term fluctuation in an otherwise resilient market.”