Mortgage approvals edge up despite higher interest rates

Mortgage approvals are continuing to rise, despite the increase in house prices and inflation and higher interest rates.

UK lenders approved 63,800 mortgages for house purchases in July, up from 63,200 in June, according to the latest Money and Credit statistics from the Bank of England.

A growing number of people also switched their home loan to a different provider, with the figures showing that approvals for remortgaging with a different lender rose to 48,400 in July, from 43,300 in June.

Approvals for both house purchases and remortgages are below the 12-month pre-pandemic average, however.

Net borrowing of mortgage debt by individuals decreased slightly to £5.1bn in July, from £5.3bn in June, while gross lending increased from £24.6bn to £26.1bn.

"After gross mortgage lending fell slightly in June, it is positive to see a slight increase in July, despite the cost of living continuing to rise," said Emma Hollingworth, distribution director at MPowered Mortgages. "Whilst it's becoming increasingly clear that we're moving into a new environment of higher inflation and rates, it's positive to see the mortgage market remaining resilient."

Hollingworth added, however, that with the cost of living continuing to increase and mortgage rates rising, many households will find their finances squeezed.

"Those looking for a suitable and affordable mortgage product will need a quick and certain answer to what mortgages are available to them. It has never been more important that it is now to execute mortgages as quickly as possible, whilst also easing the pressure on homebuyers and remortgagers during what is a challenging time to purchase and remortgage a home."

A separate report from broker research platform Mortgage Broker Tools (MBT) shows that mortgage affordability has dropped to its lowest level in 2022.

The minimum average loan size offered by mortgage lenders in July fell to just over £136,000, compared with £150,000 in January. The maximum average loan offered also fell slightly to £270,000 in July, down from just over £274,000 in June.

At the same, MBT analysis of different customer profiles shows that the number of affordable lenders able to offer mortgages to customers who want a high loan to income has fallen from 27 to 22 in just a couple of weeks, indicating that mortgage lenders are becoming less keen to lend to customers who want to borrow higher income multiples.

Pressure on buyers' budgets is growing but house prices are still rising, according to the latest figures from Nationwide.

UK house prices rose by 10% in the year to August, the 10th consecutive month of double-digit annual increases, as demand for homes continued to outstrip the supply of properties on the market.

Average house prices now stand at £273,751, an increase of almost £50,000 in two years.

"There are signs that the housing market is losing some momentum, with surveyors reporting fewer new buyer enquiries in recent months and the number of mortgage approvals for house purchases falling below pre-pandemic levels," said Robert Gardner, Nationwide's chief economist.

"However, the slowdown to date has been modest, and combined with a shortage of stock on the market, has meant that price growth has remained firm.

"We expect the market to slow further as pressure on household budgets intensifies in the coming quarters, with inflation set remain in double digits into next year. Moreover, the Bank of England is widely expected to continue raising interest rates, which will also exert a cooling impact on the market if this feeds through to mortgage rates, which have already increased noticeably in recent months."