Mortgage approvals fell to the lowest level for more than a year in August, new figures from the Bank of England show.
Amid a summer lull and the end of the main phase of the stamp duty holiday, there were 74,453 home-loan approvals in August, down from 75,100 in July, marking the lowest figure since July 2020.
Despite the dip, approvals remained above pre-February 2020 levels, the Bank’s Money and Credit report said.
Dipping: Mortgage approvals fell to the lowest level for over a year in August, the BoE said
Home loans: Mortgage lending levels in the UK since 2006
Cheap mortgage deals, the stamp duty holiday and a desire for more space have all played their part in prompting a buyer frenzy in the property market since the pandemic hit.
But, rising inflation means a hike in interest rates is on the cards, spelling bad news for borrowers already struggling with rising food and energy prices.
Net mortgage lending rebounded to £5.3billion in August, which is some way above the levels typically seen before the stamp duty cut was introduced.
Gross mortgage lending increased to £21.5billion in August, recovering from a low the month before when lending came in at £16.6billion.
From 1 October, the stamp duty threshold is set to revert to its normal level of £125,000, and £300,000 for first-time buyers.
Martin Beck, senior economic advisor to the EY Item Club, said he expects to see demand from buyers to ‘soften’ after the stamp duty holiday ends for good.
But, he added: ‘There could be another rise in net lending in September, as buyers again race to complete before the tax cut ends.’
Credit: Consumer credit figures in the UK since August 2016
Deposits: A chart from the BoE showing households’ deposits since August 2016
Jeremy Leaf, a north London estate agents and former RICS residential chairman, said: ‘We are finding that activity has reduced since but certainly not fallen off a cliff, so expect fairly consistent mortgage approval numbers for the rest of the year at least.’
Dean Esnard, a director at Magni Finance, said that while August was ‘definitely quieter’, he expects activity to pick up again.
He said: ‘September has picked up again although there is not as much intensity as buyers feel there is more room for negotiation now that the market has cooled down.
‘On the remortgage front, borrowers have been keen to switch products to take advantage of record low rates with some even paying a penalty to end their current deal early.’
Remortgage approvals grew to their highest level since last March, totalling 39,700. This was up from 37,441 in July but low when compared to the months before February 2020.
Interest rates are currently at a record low of 0.1 per cent, but with inflation on the rise, the Bank’s policymakers are under pressure to act.
Official figures showed inflation hit 3.2 per cent in August, in part due to a rise in the cost of dining out, petrol and used car prices.
The increase of 1.2 percentage points was the largest ever recorded monthly increase since the Office for National Statistics began recording the data in January 1997.
The Bank believes inflation could hit 4 per cent by the end of the year, with many analysts believing rates could be hiked in the first few months of next year.
While a rise in interest rates would spell better news for savers, borrowers would be forced to pay more on their home loans.
Simon Gammon, managing partner at Knight Frank Finance, said: ‘Mortgage rates on the high street have continued to edge down, though the trend of banks undercutting each other that we’ve seen during recent months has given way to them simply matching each other.
‘That suggests the mortgage war is beginning to peter out.
‘Instead, we’re seeing lenders loosen criteria in order to bring in new customers.’
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘Mortgage rates continue to fall as lenders, awash with cash, compete for business, which should help support the market into the autumn.’