- BoE says there were 74,453 mortgage approvals in August
- Chancellor’s stamp duty leave ends for better tomorrow
- An increase in interest rates will raise prices for some mortgage borrowers.
New data from the Bank of England shows mortgage approvals fell to a more than one-year low in August.
Amid the sluggish summer and the end of the main phase of stamp duty holiday, there were 74,453 home-loan approvals in August, down from 75,100 in July, the lowest figure since July 2020.
The bank’s Money and Credit report said that despite the decline, approvals remained above the pre-February 2020 level.
Plunge: Mortgage approvals fell to more than a year low in August, BoE said
Home Loans: Mortgage Debt Levels in the UK Since 2006
Cheap mortgage deals, stamp duty exemption and the desire for more space have played their part in prompting a buyer frenzy in the property market ever since the pandemic hit.
But, rising inflation means a hike in interest rates is on the cards, which is bad news for borrowers already grappling with rising food and energy prices.
Net mortgage lending reached £5.3 billion in August, slightly higher than the levels typically seen before the stamp duty cut.
Gross mortgage lending rose to £21.5 billion in August, recovering from a month low when borrowings came in at £16.6 billion.
From 1 October, the stamp duty limit is set to be brought back to its normal level of £125,000, and £300,000 for first-time buyers.
Martin Beck, senior economic advisor at EY Item Club, said he expects buyer demand to ‘soften’ once the stamp duty holiday ends for good.
But, he added: ‘There could be another increase in net lending in September, as buyers again rush to make ends meet before the tax deduction ends.’
Credit: Consumer credit statistics in the UK from August 2016
Deposits: A chart from the BOE showing the deposits of households since August 2016
Jeremy Leaf, a north London estate agent and former residential chairman of RICS, said: ‘We are finding that activity has subsided, but certainly not off a cliff, so significantly for at least the rest of the year. Expect a consistent mortgage approval number.’
Dean Esnard, a director at Magny Finance, said August was “definitely quiet” but he expects activity to pick up again.
He said: ‘September has picked up again, though not as intensely as buyers feel there is more room for negotiations now that the market has cooled down.
‘On the remortgage front, borrowers are willing to switch products to take advantage of record low rates, with some even paying a penalty for early termination of their existing deal.’
Remortgage approvals rose to their highest level since last March, totaling 39,700. It was up from 37,441 in July but lower than the months prior to February 2020.
Interest rates are currently at a record low of 0.1 per cent, but with inflation rising, the bank’s policymakers are under pressure to act.
Official data showed inflation reached 3.2 per cent in August, partly due to food outings, rise in prices of petrol and used cars.
The 1.2 percentage point increase was the largest monthly increase ever recorded since the Office for National Statistics began recording data in January 1997.
The bank expects inflation to reach 4 per cent by the end of the year, with many analysts expecting a rate hike in the first few months of next year.
While a hike in interest rates will bring better news for savers, borrowers will be forced to pay more on their home loans.
Simon Gammon, managing partner at Knight Frank Finance, said: ‘Morthage rates on the High Street continue to fall, although the tendency in recent months by banks to undercut each other has given them a way to match each other. .
‘This shows that the hostage war is beginning to subside.
‘Instead, we are seeing lenders loosen norms to bring in new customers.’
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘As lenders continue to drop mortgage rates, cash-strapped, there is competition for business, which should help support the market in the autumn. ‘