Rosalind Evans
July usually witnesses a spike in home purchases; however, the uptick in interest rates is starting to show its effects.
In July, the tally for mortgage approvals slumped to a five-month trough, spotlighting the mounting influence of increased borrowing expenses on the housing sector and the larger economic landscape.
Data from the Bank of England unveiled that the count of fresh loan sanctions, which are yet to be finalized, dipped from 54,600 in June to 49,400 in July, marking a 10% decline.
Even though July is customarily a period of heightened home purchases, the past month’s approval rate was a staggering 20% less than the 2022 mean.
Experts pointed out that the Bank of England’s consistent 14 increments in the benchmark interest rates, escalating from 0.1% to 5.25% since December 2021, are impacting the property market’s demand. They anticipate a more pronounced slackening in the demand in the approaching months.
Capital Economics’ property analyst, Andrew Wishart, commented that the uptrend in mortgage rates starting from April is beginning to manifest its repercussions. “However, considering the time gap between stated mortgage rates and their approval, we might only discern the complete effect around September,” he added.
Wishart mentioned that the mortgage rates during July approvals hovered below 4.5% in May. “Post that period, these rates have climbed to 5.85%. This suggests that we might witness an even steeper dip in mortgage approvals, possibly touching the 40,000 mark by September, akin to the levels observed post the previous rate hike in November,” he inferred.
On the flip side, even with the hike in mortgage rates, monthly reports from Halifax Bank and Nationwide Building Society have only reported minor dips in housing prices over the preceding year.
Interactive investor’s personal finance analyst, Myron Jobson, advised potential buyers to tread carefully. “Given the high home prices and mortgage rates, it’s essential for buyers to ensure they don’t overextend themselves.”
Simon Gammon from Knight Frank Finance remarked, “Only in the concluding ten days of the month did we notice a stabilization and slight decline in mortgage rates, providing a slight uplift in market sentiment.”
Furthermore, the Bank of England’s records highlighted a reduction in consumer credit net borrowing, which plummeted to £1.2bn in July from £1.6bn in June, primarily due to a reduced appetite for auto financing and personal loans. Meanwhile, credit card borrowing remained largely unaltered.
In summation, while the UK housing market has traditionally thrived during the mid-year months, the recent succession of interest rate hikes has thrown a curveball at buyers and lenders alike. The confluence of these economic shifts underscores the necessity for potential homebuyers to navigate the market with prudence and foresight, especially in the face of uncertain economic tides. As analysts and industry experts continue to monitor these shifts, it remains imperative for individuals to make informed decisions that safeguard their financial futures.
