Mortgage lending starts to fall

Mortgage lending fell between June and July, potentially spelling the beginning of a slowdown in activity following successive increases to the Bank of England base rate.

In a month where the cost of 2-year fixed rates surpassed 4% for the first time in nine years, it’s emerged that net mortgage borrowing dropped from £5.3bn in June to £5.1bn in July, The Bank’s Money and Credit report shows.

While this is only a minor drop, some commentators reckon it’s a sign of things to come.

Tomer Aboody, director of property lender MT Finance, said: “With mortgage lending decreasing, there’s a sense of caution emerging from buyers looking to purchase, due to increasing interest rates and inflation.”

Net mortgage borrowing is still far higher than the pre pandemic average of £4.3bn in the 12 months to February 2020.

Aboody added: “Although there is caution, we need to be realistic and also look at it in perspective to where the market was previously. Borrowing and sales are still higher than pre-pandemic levels, and borrowing rates are still lower than nearly a decade ago.

“While society got used to cheap money and low cost of living, the new reality needs to set in with buyers and consumers managing their costs, and their ability to buy. The ultimate dream home at that higher price point might not be achievable now but buyers should still have some leeway due to affordable rates.”

It seems there is still some life left in the housing market, as approvals for house purchases increased slightly to 63,800 in July, from 63,200 in June. This is still below the pre-pandemic average of 66,800 in the year to February 2020.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “Mortgage approvals generally prove to be a very useful lead indicator of future housing market activity. As a result, these latest numbers are probably being watched even more closely than usual for signs of any significant changes in response to recent sharp increases in inflation and energy prices in particular.

“It’s a little too early as interest rates are yet to have an impact, bearing in mind approximately 80% of mortgage holders are on fixed rates and there are around 40% of ‘cash’ buyers.

“Nevertheless, the market is holding up well and proving its resilience, at least for the time being. Much of the recent softening will be just as much to do with the summer holiday period and we will find out more when people return over the next few weeks.’


Average two-year fixed mortgage surpasses 4%

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