Mortgage approval rates plummet as appetite to buy diminishes

Mortgage approval rates plummet as appetite to buy diminishes (Image: Getty) Mortgage approval rates have taken a plunge as buyer appetite wanes amid surging interest rates , new data shows. According to the Bank of England’s Money and Credit Report , approvals decreased by 9.5 percent from 54,605 in June to 49,444 in July. The latest figures for July are the lowest since February 2023 (44,199), while also being down by 21.7 percent annually. Mortgage approvals in July 2022 were up by 63,179. Jonathan Samuels, CEO of Octane Capital, described the drop to be ‘considerably larger’ than widely forecast. He said: ‘This reduction in market activity is the unfortunate consequence of the Bank of England’s tentative approach to managing inflation and while we’ve seen a consistent string of hikes since the closing stages of 2021, the approach taken simply hasn’t been aggressive enough.’ Consequently, Mr Samuels said: ‘The pain being felt by borrowers has been prolonged and this has naturally led to a reduction in appetites where mortgage approvals are concerned.’ Consecutive Base Rate hikes have sent mortgage interest rates surging (Image: EXPRESS) Alice Haine, personal finance analyst at Bestinvest , said mortgage lending is ‘likely to remain weak’ over the coming months as buyer demand and spending power continue to get ‘pummelled’ by soaring interest rates and high living costs. While average mortgage rates may have ‘softened’ from their July peak, Ms Haine said: ‘It will do little to ease the stress and anxiety for new buyers desperately trying to secure their first deal or those looking to refinance who face significantly higher repayment levels.’ The UK inflation rate eased to 6.8 percent in July with expectations it will retreat further over the rest of 2023. However, while core inflation holds steady at 6.9 percent, more Base Rate hikes could be on the way. Ms Haine said: ‘With another interest rate rise on the cards next month, this will only exacerbate the dampening effect on the housing market. ‘With home ownership now more costly than renting for first-time buyers with a 15 percent deposit, according to Zoopla , the attraction of buying a property may certainly be waning for some. ‘It’s no wonder then that the number of house sales in the UK is on track to drop by a fifth this year compared to 2022, a trend largely driven by a fall in buyers with mortgages.’ Nicholas Christofi, managing director of Sirius Property Finance drop in approval rate could suggest that while the market was starting to gain momentum following September’s mini-budget turmoil, 14 consecutive Base Rate increases are now taking their toll with buyer sentiment ‘starting to wane’. However, he noted: ‘It’s important to remember that there is a seasonal element at play during the summer holiday period and this could be a contributing factor behind a reduction in market activity. So it will be interesting to see where we stand over the coming months, as we approach what is traditionally a busy time of year in the run-up to Christmas.’ Others have pointed out that today’s figures could be seen as a positive result by the Bank of England as it could be an indicator that raised interest rates are fulfilling a role in discouraging spending. Speaking on the BBC 5 Live podcast Wake Up to Money, Thomas Moore, senior investment director at investment company abrdn said: ‘Each central bank is engineering a slowdown in the economy. ‘It’s not a nice thing to be told, is it? As you’re sitting there looking at all the bad news that’s going to unfold in the next few weeks and months? But actually, that’s what the UK needs and other economies need because inflation is just too high.’ Mr Moore noted that the UK inflation rate remaining high at 6.8 percent has warranted the rise in interest rates. He said: ‘What we’re trying to do in terms of economic policy, I guess, is the central bankers are trying to engineer a slowdown, which isn’t going to tip us into this horrendous 1991-style recession. But what we need is just slower economic growth.’ Mr Moore added: ‘The stock market yesterday responded pretty positively to these signs of slowdown. There’s an expression that bad news is good news, which sounds very topsy-turvy, but that’s the best explanation of why housebuilding shares, for example, yesterday went up. ‘I think it was one of the best-performing sectors. So what the UK needs right now, is a sort of slowdown. But let’s just touch lots of wood that we’re not going to get a massive recession in that process.’