The property market in the UK continues to show signs of a slowdown as mortgage interest rates rise. According to data from the Bank of England, lenders in Britain approved the fewest new mortgages in six months in August. The number of mortgages approved for house purchases fell to 45,354, down from 49,532 in July. This is in line with economists’ expectations and reflects a cautious approach from buyers and homeowners.
One factor contributing to this decline in mortgage approvals is the rise in interest rates. The average interest rate paid on a new mortgage in August was 4.82%, the highest since records began in 2016. Existing homeowners seeking to remortgage their properties have also been deterred by high interest rates, with the number of remortgaged properties falling to its lowest level since July 2012.
“Myron Jobson, senior personal finance analyst at brokers Interactive Investor, explained that buyers and homeowners are “happy to play the waiting game in the hope of getting a better deal.” This suggests that potential buyers are waiting for interest rates to stabilize or decrease before committing to a purchase.
Despite the slowdown in the property market, borrowing by consumers has gathered some steam. Net unsecured lending to consumers increased by £1.644 billion in August, beating all forecasts. The annual growth rate in unsecured borrowing rose to its highest since April, reaching 7.6%. This could indicate that households are turning to alternative forms of financing, such as personal loans or credit cards, to meet their financial needs.
The data from the Bank of England also revealed a shift in savings behavior. Savers are moving their money from instant access accounts to those with longer-term fixed rates in order to lock in higher interest rates. This suggests that savers are looking for better returns on their savings in the current low-interest-rate environment.
The contrasting trends of a slowdown in the property market and increased consumer borrowing and savings behavior potentially indicate households being squeezed by the high cost of living. The withdrawals from banks and building societies may also reflect a transfer of money to higher-yielding investments.
The slowdown in the property market has been ongoing for a year following bond market turmoil triggered by the government’s “mini-budget” in September 2022. The impact of rising interest rates, along with economic uncertainty, has contributed to a decline in house prices. Mortgage lender Halifax reported a 4.6% drop in house prices in August, the sharpest decline in 14 years.
However, there are signs of a potential recovery in the property market. A survey from property website Zoopla showed a tentative rise in potential buyers during September as mortgage rates appeared to have peaked. This suggests that buyers may be more willing to make purchases once interest rates stabilize.
Overall, the data from the Bank of England highlights a mixed picture for the UK property market. While mortgage approvals have declined, consumer borrowing and savings behavior have seen some positive growth. The impact of rising interest rates and economic uncertainty continues to affect the property market, but there are indications of a potential recovery in the near future.