The number of mortgages given the go-ahead to home buyers slumped to a six-month low in August, while approvals for remortgaging were at the lowest level in over a decade.
In a sign of what lies ahead for the UK housing market, around 45,400 mortgages for house purchases were approved in August.
According to the figures, released by the Bank of England, this marked the lowest level seen since February 2023, when the total was just under 44,300.
Net approvals for remortgaging, which only capture remortgaging with a different lender, dropped from 39,300 in July to 25,000 in August – the lowest tally since July 2012.
There have been indications that some of the pressure on mortgage holders may ease slightly. Last week, the Bank of England pressed pause on its run of base rate rises and in recent days some major lenders have chopped the rates on their new fixed-rate mortgages.
Many will be struggling to get a new deal, or trying to ride out a variable rate for a short while in the hope that fixed deals will get cheaper in the coming months— Kevin Brown, Scottish Friendly
However, mortgage rates remain significantly higher than homeowners have grown used to in recent years.
Separate figures released by HM Revenue and Customs (HMRC) on Friday showed that an estimated 87,010 home sales took place across the UK last month, which was 16% lower than in August 2022 but 1% higher than in July 2023.
Kevin Brown, savings specialist at Scottish Friendly, said: “The collapse in remortgages reflects the effects of rising bank rates on households.
“Many will be struggling to get a new deal, or trying to ride out a variable rate for a short while in the hope that fixed deals will get cheaper in the coming months. There is some evidence that this might be worthwhile as fixed rates are showing signs of falling, particularly as the (Bank of England) Monetary Policy Committee put a pause on rate hikes last week.”
Justin Moy, founder at Chelmsford-based mortgage broker EHF Mortgages, said: “The popularity of product transfers has gone through the roof, which explains why net approvals for remortgaging, which only capture remortgaging with a different lender, went through the floor. Product transfers are less faff and involve less underwriting, which for many borrowers is key right now.”
Martin Beck, chief economic adviser to the EY Item Club said: “While markets still attach a reasonable probability to one more rise later this year, the EY Item Club thinks the peak has been reached. If that proves true, mortgage rates should continue to drift down.
“However, borrowing costs are still set to be much higher than only a year or so ago. With the labour market weakening and sentiment around the housing market poor, the EY Item Club doubts a fall in mortgage rates will be enough to trigger much of a revival in activity.”
Private renters are also facing increasingly unaffordable housing costs, with many having seen their rent rise due to their landlords passing on higher borrowing costs— Richard Lane, StepChange Debt Charity
Richard Lane, director of external affairs at StepChange Debt Charity, said: “The pause in rate rises last week will bring some relief, but borrowers are still facing significantly higher costs than they would have anticipated 18 months ago.
“Private renters are also facing increasingly unaffordable housing costs, with many having seen their rent rise due to their landlords passing on higher borrowing costs.”
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Things aren’t quite as dire as they were in the aftermath of the mini-budget, but that’s an incredibly low bar. We’re seeing every sign that higher mortgage rates effectively killed demand during the month.”
There were also signs of households raiding their savings and relying more heavily on credit in August in the Bank of England’s figures contained in its Money and Credit report.
Looking at non-mortgage borrowing by households, net borrowing on consumer credit amounted to £1.6 billion in August, up from £1.3 billion in the previous month.
Households collectively withdrew £0.3 billion from banks and building societies in August following two months in a row of making net deposits.
Alice Haine, personal finance analyst at DIY investment platform Bestinvest, said: “With savings rates potentially at or near the peak, locking in a high fixed rate now can help give more savers an inflation-beating return if prices continue to soften.”
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “The uptick in withdrawals from savings accounts in August is indicative of the fact that many households are still allocating a sizeable chunk of their income towards covering basics necessities – with the soaring cost of housing, be it mortgage repayments or rent, a particular pain point. This leaves them with less disposable income to save.”
Meanwhile, UK non-financial businesses repaid £0.9 billion of banks and building society loans (including overdrafts), following net borrowing of £0.6 billion in July.
It could also be that household finances are becoming so stretched that many are having to resort to borrowing— Thomas Pugh, RSM UK
Thomas Pugh, economist at leading audit, tax and consulting firm RSM UK, said: “The sharp drop in mortgage approvals from 49,500 in July to 45,400 in August, the lowest level in six months, is a response to the jump in interest rates over the last two years and suggests that activity in the housing market remains subdued.
“Admittedly, interest rates on new mortgages will probably drift down over the next few months now that interest rates seem to have peaked, but they will remain close to the highest level since the financial crisis. We still expect a peak to trough fall in house prices of a little under 10%.”
He added: “The cash in households’ bank accounts dropped by £0.3 billion in August. This could be explained by consumers becoming confident enough to start running down the excess savings built up during the pandemic.
“However, it could also be that household finances are becoming so stretched that many are having to resort to borrowing. Upcoming consumer spending data will be the key indicator as to which is the more likely explanation.
“Firms continued to shore up balance sheets by repaying finance. This was especially prevalent in the SME market, where smaller firms balance sheets are likely to come under more pressure.”
