Approvals fall to lowest level since 2023 as mortgage rates continue to rise: BoE

Net mortgage approvals for house purchases decreased to 54,900 in August, the lowest level seen since December 2023, the latest Money and Credit statistics from the Bank of England show.

Approvals for remortgaging with a different lender also fell to 34,000 in August, from 34,600 in July.

The decline comes as the average interest rate paid on newly drawn mortgages increased from 4.45% in July to 4.60% in August. The rate on the outstanding stock of mortgages also rose to 4.00% in August, up from 3.97% in July.

Amid higher pricing, net mortgage borrowing increased to £4.4 billion in August, from £4.1 billion in July, but below the previous six-month average of £5.2 billion. 

Gross lending decreased to £23.6 billion in August, down from £25.3 billion in July, and below the six-month average of £26.5 billion. 

Mark Harris, chief executive of mortgage broker SPF Private Clients, commented: “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% while the rate on the outstanding stock of mortgages edged up to 4%. 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."

Richard Pike, sales and marketing director at Phoebus Software, said: “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.”

John Phillips, CEO of Just Mortgages and Spicerhaart, commented: “Given it is prime holiday season, we shouldn’t be too surprised to see mortgage approvals dip in August – especially when you also consider the headwinds the market has been battling. While we did see some positive movements from lenders in August, rate volatility was rife as swap rates responded to the uncertainty caused by the ongoing conflict in the Middle East. Rates have only seemed to move in one direction since then, but despite this, we’ve been encouraged by a modest uplift in buyer registrations and valuation requests in September. It’s a good sign that there is still people out there looking to make moves and to buy. 

“There’s no question that there’s some element of wait and see right now ahead of the Budget. The hope is that this gives way to some pent-up demand – particularly as we find out more about the new Your First Home scheme. Like we’ve seen with other headline products that have come to the market recently, it is likely to generate interest and enquiries, creating fresh opportunities for advisers to discuss the full range of options available to first-time buyers. As we head into the final quarter of the year, advisers need to be proactive and share the opportunities that still exist in the current market.”

Katie Clinton, head of financial services advisory at KPMG UK, added: “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.”