House purchase approvals fell to 54,900 in August while effective rates on new mortgages climbed to 4.6% ahead of the Budget
Mortgage approvals for house purchases fell again in August, dropping to 54,900 from 55,900 in July, as rising borrowing costs and uncertainty ahead of the Autumn Budget kept many UK buyers on the sidelines, according to the Bank of England's latest Money and Credit statistical release.
The figure sits below the average of around 60,100 recorded over the previous six months. Approvals for remortgaging, which only capture borrowers switching to a different lender, slipped to 34,000 from 34,600 in July.
Net mortgage borrowing moved in the opposite direction, rising to £4.4 billion from £4.1 billion in July, although it remained below the six-month average of £5.2 billion.
Borrowing also became more expensive. The effective interest rate paid on newly drawn mortgages rose to 4.6% from 4.45% in July, while the rate on the outstanding stock of mortgages edged up to 4% from 3.97%.
What is pushing mortgage rates higher?
Mortgage professionals blamed volatile swap rates for the latest rise, having moved sharply this year amid global uncertainty.
Mark Harris, chief executive of SPF Private Clients, said lenders had been responding to that volatility.
"The effective interest rate paid on new mortgages jumped again to 4.6% while the rate on the outstanding stock of mortgages edged up to 4%," he said. "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."
He added that the dip in remortgaging could point to more borrowers opting for a product transfer with their existing lender.
"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."
Can the Your First Home scheme revive buyer demand?
The government announced the Your First Home equity loan scheme for England on 26 September. The Ministry of Housing, Communities and Local Government (MHCLG) said the scheme is expected to support 2.5% deposits, backed by 20% government equity loans, for first-time buyers purchasing new-build homes from participating developers. Full details will be set out at the Budget on 28 October.
The plan has already drawn a cautious welcome from mortgage professionals across the industry, and Harris said it could give the purchase market a lift.
"Mortgage approvals fell again in August and remain below the six-month average, illustrating the concerns and difficulties facing buyers," he said. "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."
Nathan Emerson, chief executive of Propertymark, said many buyers were holding back until the Budget.
"Many prospective buyers have understandably been taking a more cautious approach and waiting to see what measures are announced in the Autumn Budget," he said. "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."
Are buyers still pressing ahead with moves?
Some in the market read the rise in net borrowing as evidence that deals are still getting done, continuing a pattern that has seen mortgage approvals swing through the most volatile year since 2022.
Jeremy Leaf, a north London estate agent and former residential chairman of the Royal Institution of Chartered Surveyors (RICS), said slower processing could also be holding approval numbers back.
"Approvals may have slipped a little but on the other hand, net borrowing has gone up so on balance we see buyers and sellers defying the doom mongers and getting on with moving plans, despite nagging worries about rising mortgage costs and inflation," he said. "However, we have noticed on the ground that the time taken to arrange finance for property purchases is increasing, which may also be contributing to lower approval numbers."
John Phillips, chief executive of Just Mortgages and Spicerhaart, said seasonal factors had played a part.
"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," he said. "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."
He said advisers should use the pause before the Budget to prepare clients.
"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."
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