Mortgage approvals hit unexpected eight-month high in June
New mortgage approvals remain below the 66,000 average seen between 2010 to 2019
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Mortgage approvals increased to an unexpected eight-month high in June, despite soaring interest rates.
New mortgage approvals increased from 51,100 in May to 54,700 last month, Bank of England data shows, the most since October 2022. Approvals for remortgaging increased from 34,100 to 39,100 in the same period.
Alice Haine, personal finance analyst at Bestinvest, said: “This may be the calm before the storm, with mortgage lending likely to remain weak over the coming months as lenders grapple with the high interest rate, high inflation rate environment.”
Pete Mugleston, MD and mortgage expert at www.onlinemortgageadvisor.co.uk, said: “We are by no means through the mortgage market storm. It’s likely that these latest figures do not reflect recent mortgage rate rises, and as the year goes on, we aren’t expecting the number of approvals to increase significantly.
The Bank of England has increased the Base Rate 13 consecutive times
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“That being said, it does show that the recent decrease in the rate of inflation has affected the mortgage market in a positive way, and we can only hope that this continues – the next of house price indexes should give us a clear view of the state of the market at the moment."
Despite hitting an eight-month high, new mortgage approvals remain below the 66,000 average seen between 2010 to 2019.
The housing market is likely to weaken further in the coming months due to significantly higher borrowing rates on mortgages following the recent interest rate hikes, as well as expectations for future ones.
The Bank of England looks set to increase the Base Rate for a 14th consecutive time on Thursday, with the central bank predicting a rise from five per cent to 5.25 per cent.
Inflation has shown some signs of easing recently – official Office for National Statistics (ONS) figures showed Consumer Prices Index (CPI) inflation was 7.9 per cent in June, down from 8.7 per cent in May and the lowest rate since March 2022.
Thomas Pugh, economist at accountants RSM UK, said the rise in mortgage approvals likely represents a “scramble to secure a deal before cheaper mortgage rates were pulled from the market in the wake of the surge in interest rate expectations at the end of May”.
RSM forecast a 10 per cent peak-to-trough fall in house prices. House prices in May were just two per cent lower than their peak in September 2022, official data shows.
Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, said: "Looking ahead, growth in households' real disposable incomes will be weighed down by mortgage refinancing.”
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The rate rises will directly affect more than one million people remortgaging this year, who will see their mortgage payments soar by hundreds of pounds per month.
A further one million people are set to be impacted next year amid the central bank’s efforts to ease inflation.
Mr Mugleston warned: “It is important to acknowledge that mortgage rates still remain considerably higher than previous years which will naturally have an effect on the number of approvals. Looking into the future, our current estimate indicates that the Bank of England’s base rate will reach a peak of 5.75 per cent.
"This is lower than earlier expert predictions, which anticipated a peak of six per cent. As a result, mortgage rates will continue to rise in the coming months, although the pace of increase will be slower than previously predicted, all thanks to the declining inflation."