Source: Sharecast
According to the central bank’s latest money and credit report, net borrowing of mortgage debt by individuals was £4.4bn, up on July’s £4.1bn and in line with expectations.
However, net mortgage approvals – a key indicator of future borrowing – fell by more than expected to 54,900. The lowest since December 2023, it was below both the previous six-month average of 60,100, and consensus for 56,100.
The decline came as the effective interest rate – the actual interest paid – on newly drawn mortgages increased to 4.6% from 4.45% in July.
The housing market has endured a sluggish year, after the outbreak of war in the Middle East ramped up inflationary pressures. Prior to the US launching its campaign against Iran, the BoE had been slated to cut the cost of borrowing this year. Instead, the Monetary Policy Committee has now left Bank Rate on hold at 3.75% for six consecutive meetings, and warned earlier this month it would hike should inflation continue to rise. The consumer price index currently stands at 3.1%, above the BoE’s long-term target of 2%.
Katie Clinton, head of financial services advisory at KPMG UK, said: “A further fall in mortgage approvals points to affordability pressures continuing to weigh on housing demand, as the shocks from the Iran conflict push up both inflation and mortgage rates.”
Matt Swannell, chief economic advisor to the Item Club, said the mortgage market had come under “significant pressure” this year. “Quoted rates on new mortgages have risen from around 4% to 5% over the past six months, as financial markets have shifted from expecting interest rate cuts to interest rate hikes.
“We expect the MPC to raise Bank Rate in November and February. As a result, mortgage rates are likely to remain close to 5% for the rest of this year and into next and will continue to weigh heavily on mortgage activity.”
The BoE’s monthly report also showed a surprise spike in net borrowing of consumer credit by individuals. The biggest rise since monthly records began in 1993, borrowing rose to £2.5bn, up from £2.1bn in July and confounding market expectations for a decline, to £1.9bn.
Within that, credit card borrowing jumped to £1.2bn from £0.9bn, with other forms of borrowing – including car dealership finance and personal loans – rising to £1.3bn from £1.2bn.
Julie Palmer, managing partner at advisory group BTG, said that while rising consumer credit pointed to higher levels of spending, “it is likely to also be a reflection of the rising cost of living, as more people use credit to pay for essentials, leaving less space for luxuries”.
Households’ deposits with banks and building societies, meanwhile, increased by £4.7bn in August.