Mortgage borrowing and approvals fall

Latest Bank of England data shows mortgage approvals fell to 56,100 in July, down from 58,215 in June and below the six-month average of 60,800, as higher borrowing costs weighed on housing demand.

The figure was below the average of around 60,800 over the previous six months. Approvals for remortgaging increased to 34,500 from 34,100, not including product transfers.

Mortgage borrowing by individuals also fell sharply  to £4.3 billion, from £7.7 billion in June. It was also below the previous six-month average of £5.3 billion. Mortgage repayments increased slightly to £21.3 billion, from £21.2 billion in June. They remained above the six-month average of £20.8 billion.

Consumer credit borrowing increased slightly to £2 billion in July, from £1.9 billion in June, slightly above the previous 6-month average of £1.9 billion. Within this, credit card borrowing was £0.9 billion in July, down from £1.0 billion in June, while net borrowing through other forms of consumer credit increased to £1.1 billion in July, from £0.9 billion in June.

Damien Burke, Head of Regulatory Practice at Broadstone, said “The mortgage market lost momentum through July with both net borrowing and approvals falling below their recent averages suggesting that affordability pressures and wider economic uncertainty continue to make prospective buyers cautious.

“The financial markets backdrop remains challenging with UK borrowing costs rising to post financial crisis highs this morning and expectations of further interest rate hikes growing. If these pressures persist, they could feed through into higher mortgage pricing and further weaken activity across the housing market.

“Meanwhile, consumer credit borrowing remains elevated and while this partly reflects resilient demand, it may indicate that some households are increasingly reliant on borrowing as living costs continue to stretch their finances.”

Ravi Sidhu, Subject Matter Expert, Credit Risk from Dun & Bradstreet said “July’s rise in business lending suggests firms, including many SMEs, are becoming more willing to invest and refinance, even with borrowing costs remaining historically high. This points to a degree of adjustment, with firms adapting to a rate environment that has now held at 3.75% for five consecutive meetings, rather than pausing their plans.

“Dun & Bradstreet’s own data lends some support to this: UK business closures fell 8.3% year on year in Q2, though they crept up slightly on Q1’s total. However, these figures were recorded before markets began pricing in a Bank of England rate rise, rather than a cut, at its next meeting. With oil prices still elevated on continuing Middle East tensions, the conditions behind this improvement could well shift.

“In this environment, firms will need a clear view of credit risk and enough financial headroom to absorb a further shock. Those with stronger visibility across their supply chains and cash positions will be better placed to build on July’s gains without missing the opportunity to keep investing.”