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Purchase and remortgage approvals plummet in August – BoE

  • 29/09/2023
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Purchase and remortgage approvals plummet in August – BoE
Net mortgage approvals for house purchases fell to 45,400 in August, the lowest level for six months, the latest figures have shown.

According to the latest Bank of England (BoE) money and credit figures, this is a decrease from 49,500 in July.

Net approvals for remortgages declined from 39,300 in July to 25,000 in August, which the BoE said was the lowest since 2012.

The report continued that the effective interest rate, the actual interest rate paid, on newly drawn mortgage rose by 16 basis point and sits at 4.82 per cent.

Net borrowing of mortgage debt by individuals, however, increased from £200m in July to £1.2bn in August.

The report said that this was the fourth consecutive month of increases and the highest figure since January.

Gross lending rose from £19.1bn in July to £10.7bn in August and gross repayments staid stable at £18.9bn.


Rate war expected to lead to pick up in approval activity

Lewis Shaw, founder of Mansfield-based Shaw Financial Services, said that it remained to be seen how much of the fall in mortgage approvals was due to with the “natural August lull and how much was due to the wobbles in the mortgage and property market”.

He continued that September has “picked up slightly” but there had not been the “Autumn bounce” that typically happens as people want to move before Christmas.

“With rates reducing and swathes of new property for sale as landlords look to offload, transactions could pick up in the final quarter of the year. However, this is on a knife edge, and sentiment from buyers is clear: why would I buy a depreciating asset right now when it will be cheaper next month?” Shaw noted.

Steven Hargreaves, mortgage adviser at Leeds-based The Mortgage Co, said that the fall in August was “no surprise”.

“August is a holiday period, meaning lending ordinarily dips, but August 2023 felt particularly quiet. We are hoping that, with the interest rate war now raging, we can catch up in the autumn for the lower-than-average activity levels over the summer. The way in which lenders are now pricing their products and interest rates suggests they are hoping for the same,” he noted.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said that the fall in mortgage approvals in August was because buyers were concerned about the wider economy and what they can afford.

He continued that average rates had continued to climb but the decision by the BoE to keep the base rate at 5.25 per cent could mean “the worst of the pain may be over with many economists believing interest rates have peaked”.

“Swap rates, which underpin the pricing of fixed-rate mortgages, and have been exceptionally volatile in past months, continue to edge downwards as inflation continues to fall. Lenders are busy reducing fixed rate mortgages, with numerous sub-five per cent five-year fixes available – a trend we expect to continue in coming weeks,” Harris added.


‘Popularity of product transfers has gone through the roof’

Justin Moy, founder at Chelmsford-based mortgage broker, EHF Mortgages, said that the “popularity of product transfers has gone through the roof”, which explained why net approvals for remortgaging, which only covers remortgaging to a different lender had fallen so dramatically.

“Product transfers are less faff and involve less underwriting, which for many borrowers is key right now,” he said.

Moy said that the “vast majority of our applications” were product transfers and remortgages, and with rates reducing, his team was “spending time grabbing cheaper deals for those who made early decisions to reserve”.

“Let’s see if the markets settle this side of Christmas, or if we see another bounce and increases,” he added.

Ranald Mitchell, director of Norwich-based independent mortgage broker, Charwin Private Clients said that there were “still plenty of aspirational homeowners and movers out there, and they are waiting for the cost of borrowing to ease back to more workable levels”.

“As mortgage costs are reducing, there will be an uptick in property sales again for the remainder of the year,” he noted.

He added that for people remortgaging it was “seeing a significant increase in debt consolidation enquiries, with many people’s finances at breaking point”.

“The message to anyone looking to restructure debt is to do it sooner rather than later. Debt accruing to unmanageable levels can prevent the remortgage from happening at all, so don’t wait. If you feel debt levels and personal solvency is a problem, act on your instinct. Don’t stick your head in the sand,” Mitchell explained.

Some views were gathered from Newspage.

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