Soaring interest rates cooling mortgage approval rates

The housing market in the UK is facing a potential slowdown, according to recent mortgage approval figures. The data shows a significant drop in approvals for July, with a 10% decrease from June and a 21.7% annual decline compared to July 2022.

Nicholas Christofi, managing director of Sirius Property Finance, noted that the latest figures show mortgage approvals have fallen to their lowest since the start of the year. He also suggested that the consecutive base rate increases by the Bank of England are negatively affecting buyer sentiment, causing the market to lose momentum gained after the turmoil of last September's mini budget.

Andrew Wishart, a property analyst at Capital Economics, echoed these sentiments, stating that the renewed surge in mortgage rates since April has started to impact the housing market. He predicts that mortgage approvals will drop to around 40,000 by September, the same level reached after the previous peak in mortgage rates last November.

The mortgage approvals figures for August and beyond will provide a clearer picture of the impact of the Bank of England's interest rate hikes on the housing market. However, the summer holiday period could be a contributing factor to the reduction in mortgage market activity, as it traditionally sees a decrease in mortgage loans.

The seasonal element during the summer holiday period may have masked the full extent of the impact of the Bank of England's interest rate hikes on the housing market. Wishart stated that the July approvals reflect mortgage rates of just below 4.5% in May, and further falls in mortgage approvals are expected due to the rise in mortgage rates to 5.85% since then.

Despite the current slump, Christofi remains optimistic, believing it will be interesting to see where the market stands in the coming months, as we approach the traditionally busy time of year leading up to Christmas. He believes the housing market might experience a period of reduced activity during the summer holiday period but expects this trend to reverse as we approach the traditionally busy time of year.