Boost for property market as mortgage approvals jump to two-year high in August

Some 64,900 loans for house purchase got the green light in August, up from 62,500 in July

The latest Bank of England figures reveal a jump in mortgage approvals in August, hitting a two-year peak with 64,900 home purchase loans approved, an increase from July's 62,500.

This surge was highlighted in the Bank's Money and Credit report. Remortgaging also saw a slight upward trend, going from 25,200 in July to 27,200 in August, marking an end to a five-month streak of declines. Mortgage broker SPF Private Clients' chief executive, Mark Harris, said "Mortgage approvals for new purchases rose again, which bodes well for housing market activity in the final quarter."

"Remortgage approvals also picked up after a dip in July, suggesting a growing number of borrowers are drawn to ‘best buy’ rates offered by other lenders, rather than sticking with their existing provider." When it comes to non-mortgage borrowing, there was a small uptick in net consumer credit borrowing, reaching £1.3bn in August from £1.2bn in July.

The report attributes this increase to more net borrowing for consumer credit, including car dealership finance and personal loans. Karim Haji, KPMG's global and UK head of financial services, said: "A rise in consumer borrowing in August could signal that many stretched households are still battling the cost of living by turning to credit to get by."

In August, the annual growth rate for all consumer credit, which includes credit cards, overdrafts and other loans, slowed to 7.6% from July's 7.8%, the report highlighted. During the same month, households deposited an additional £7.3bn with banks and building societies, a notable increase from £5.9bn in July.

The report also detailed that borrowing by large businesses saw its annual growth rate climb from 1.7% in July to 2.9% in August. Meanwhile, the borrowing rate for SMEs remained relatively stable at minus 4.0%. These figures emerged as Nationwide Building Society announced that September experienced the quickest annual house price growth in nearly two years. Nationwide recorded a jump in the annual price growth rate from 2.4% in August to 3.2% in September, marking the fastest pace since November 2022's 4.4% rise.

The average UK house price in September was reported at £266,094. Tom Bill, head of UK residential research at estate agent Knight Frank, commented: "Falling mortgage rates led to an increase in house price growth in September, with demand also boosted by buyers putting off decisions until after the election."

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, added: "Improving mortgage rates and strong income growth have eased the affordability challenge for some buyers in recent months, with the Bank of England’s interest rate cut at the start of August and prospect of at least one more rate reduction to come this year energising the residential property market."

She continued: "Borrowing costs remain relatively high when compared to two years ago and who gains and who loses out depends on the type of mortgage someone has and what stage of the home ownership journey they have reached. While first-time buyers and existing homeowners on tracker products may be buoyed by the prospect of better rates this year, homeowners locked into expensive fixed-rate deals with some time left to run won’t feel any respite until their product expires."

A survey conducted for online budgeting tool IE Hub, which was released on Monday, showed that nearly a third of mortgage holders (31%) are still concerned about potential hikes in interest rates, even though the Bank of England base rate has recently decreased from 5.25% to 5%. Twenty percent of homeowners polled admitted their mortgage is significantly higher than before.

Almost one in four (24%) stated their intention to switch mortgages once their current agreement comes to an end in hopes of cutting down costs, with 16% already exploring options for managing the payment of their new rates. Dylan Jones, chief executive of IE Hub, said: "If you do find yourself struggling to pay your mortgage, get in touch with your provider in the first instance and discuss with them a payment plan that you can afford..." "Don’t suffer and worry in silence, reach out – mortgage lenders are there to help you and have a duty of care to do so too."

For the insights of the report, some 1,000 mortgage holders across the UK were surveyed in September for IE Hub.