The Bank of England’s Money and Credit data shows that gross repayments rose in August to £20bn, up from £19.8bn in July.
Net approvals – approvals net of cancellations and an indicator for future borrowing – were 64,700 in August, a drop of 500 month-on-month.
Remortgage approvals fell by 900 to 37,900 in August.
The effective interest rate – the actual interest paid – on newly drawn mortgages contracted for the sixth month in a row to 4.26% in August.
The rate on the outstanding stock of mortgages rose slightly from 3.88% to 3.89%.
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The report noted that net borrowing of mortgage debt fell by £200m month-on-month to £4.3bn in August. This came after a £900m decrease to £4.5bn in July.
The Bank of England said the annual rate for net mortgage lending stood at 3% in August, a slight rise from 2.9% in the prior month.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said UK mortgage approvals fell in August despite a rise in listings, as sellers sought to “take advantage of the popular summer selling season”.
“However, the holiday period may have dampened buyer activity, with many prospective buyers away on summer breaks. The drop in mortgage approvals suggests the housing market is beginning to stutter as it adjusts to the end of the stamp duty tax break and prepares for the Autumn Budget.
“Higher purchase costs have resulted in more muted property price growth in recent months as buyers negotiate harder to keep purchases affordable and sellers adjust their expectations and price homes more competitively to secure a sale,” she noted.
Haine said the upcoming Autumn Budget, with rumours of property tax changes, meant the market “may be facing a fresh wave of uncertainty”.
“Property tax reforms mooted so far include a new national sales levy to replace stamp duty, capital gains tax applied to the sale of high-value residences, council tax reform and National Insurance on rental income for landlords. The speculation has prompted some buyers to pause purchase plans as they wait to see what unfolds.
“On the plus side, slower house price growth, combined with more competitive mortgage rates than in recent years and easing lending criteria, has improved affordability for some. Inflationary pressures have crept back up in recent months, though, and with the Bank of England holding off on further interest rates cuts until the inflation problem improves, mortgage rates are unlikely to fall dramatically in the near term. The effective rate on newly drawn mortgages eased slightly to 4.26% in August from 4.28% in July,” she added.
Haine said homeowners coming off historic-low fixed rate deals “face the toughest challenge”.
“Unless they’ve significantly reduced their outstanding balance, any new deal is likely to come with much higher monthly repayments. This was evident in the effective rate on the outstanding stock of mortgages, which rose to 3.89% from 3.88% in July.
“For those with a few months left on their current deal, it may be wise to increase monthly repayments now to help ease the transition. Overpaying can also reduce the capital owed, softening the blow a little when refinancing.
“Working with an independent mortgage broker can help new buyers and existing borrowers navigate the complex landscape and secure the most suitable deal. Even after locking in a product, it’s worth monitoring the market – switching to a better rate could be worthwhile if the savings outweigh the admin involved,” she said.
