The number of mortgage approvals made to home buyers fell by nearly 10% between June and July, according to Bank of England figures.
Some 49,444 approvals were recorded in July, down from 54,605 in June, according to the Bank’s Money and Credit report.
Experts pointed to the impact of concerns about the wider economy on the housing market.
Simon Gammon, managing partner at Knight Frank Finance, said: “We’re hopeful that mortgage rates continue to ease over the coming months, despite the fact that the Bank of England will probably raise the base rate at least once before the end of the year.
“Mortgages are priced off swap rates, which are heavily influenced by the longer-term outlook for the economy.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “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 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.
Rising mortgage costs are not the only source of financial concern for struggling households— Alice Haine, Bestinvest
“A number of lenders have been reducing their fixed rates and borrowers will be hoping others follow suit in coming weeks.”
Martin Beck, chief economic adviser to the EY ITEM Club, said: “While swap rates are lower than their early-July peaks, they are still well above the levels seen in early summer.
“And the scale of the recent rise in interest rates… means housing market activity seems destined to remain sluggish for the foreseeable future.”
Nicholas Christofi, managing director of Sirius Property Finance, said of the latest figures: “This suggests that while the market was starting to gain momentum following the turmoil of last September’s mini budget, 14 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.”
The net amount of money flowing into banks and building societies and NS&I accounts from households also fell sharply, to £0.3 billion in July, from £3.6 billion in the previous month, according to the Bank of England figures.
Some savers are perhaps making withdrawals to help balance their books at a time of heightened financial stress— Alistair McQueen, Aviva
Alistair McQueen, head of savings and retirement at Aviva said some money flowing out of accounts in July may have been due to savers shifting their cash around to make the most of improving savings rates.
He continued: “However, some savers are perhaps making withdrawals to help balance their books at a time of heightened financial stress. Financial challenges continue for many but those who can afford to save are taking positive steps.”
People’s net borrowing of consumer credit decreased to £1.2 billion in July, from £1.6 billion in the previous month.
This was driven by a fall in borrowing through forms of consumer credit such as car dealership finance and personal loans while borrowing on credit cards remained broadly unchanged.
Alice Haine, personal finance analyst at investment platform Bestinvest, said: “Mortgage approvals plunged almost 10% in July. Rising mortgage costs are not the only source of financial concern for struggling households – pricey consumer borrowing is also causing anxiety, coming at a time when many have little option but to turn to credit cards, loans and overdrafts to cover expensive everyday bills.
“Big ticket purchases such as a new kitchen, car upgrade or family holiday must be assessed carefully to ensure they are truly affordable.”
Dean Butler, managing director for retail direct at Standard Life, part of Phoenix Group said: “The latest figures from the Bank of England highlight the fragility of UK household finances as levels of borrowing stay high while savings withdrawals continue to largely offset household deposits…
“It’s hard to break the cycle of debt and under saving. Hopefully, however, with inflation showing signs of falling, average earnings rising and interest rates thought to be close to their peak, we’ll start to see many households move back into the black as we move through the next few months.
“It’s far easier said than done but in the meantime it’s worth anyone who is struggling each month thinking about cancelling any unnecessary monthly expenses before taking on high-interest credit debt, and, if possible, keeping a level of rainy day savings to cover unexpected costs.”
Richard Lane, director of external affairs at StepChange Debt Charity, said: “New StepChange client data confirms that the number of people in need of debt advice continues to climb – client volumes were 8% higher year-on-year in July.”
