The Bank of England’s latest Money and Credit figures revealed a positive development in the mortgage market, with an increase in approvals for both house purchases and remortgages in July.

Rising Mortgage Approvals

In June, the number of net approvals for house purchase mortgages reached 54,700, marking the highest level since October of the previous year. This showed an improvement compared to the previous month’s figure of 51,100. However, it’s worth noting that the current approvals are still below the monthly average of 62,700.

Approvals for remortgaging also saw an upswing, rising from 34,100 in May to 39,100 in June.

increase in house sales

Challenges Ahead

Despite the positive trend, experts remain cautious about the future of the mortgage market. Steve Seal, CEO of Bluestone Mortgages, warns that there are still strong economic headwinds to face. As lenders continue to increase rates and withdraw deals, affordability remains a significant challenge for both potential and existing borrowers.

Nevertheless, Seal emphasises the importance of reminding people that the dream of homeownership can still be achievable.

Two Stories from the Bank of England Figures

Adam Oldfield, chief revenue officer at Phoebus Software, points out that the Bank of England’s figures present two distinct narratives. The first one highlights that there is still a demand for property purchase, contrary to some negative beliefs.

On the other hand, the second story reflects the increasing reliance on credit as the cost of living continues to rise. In June, the net borrowing of consumer credit reached £1.7bn, the highest figure since April 2018.

Tracker Mortgages Gaining Popularity

Nick Mendes, mortgage technical manager at John Charcol, explains that the rise in activity is driven by a growing demand for tracker products. With inflation starting to ease, borrowers are looking to hedge against potential interest rate fluctuations in the future. Many customers are now considering tracker mortgages, hoping for further interest rate reductions and the opportunity to secure more attractive rates in the coming months.

Mendes reveals that the brokerage has seen a significant shift in customer preferences, with 9.2 per cent of mortgage applications this month being for tracker products, up from 4.2 per cent in June.

Mortgage Lending Trends

The data shows a positive trend in mortgage lending as well. Gross mortgage lending saw a consecutive increase, rising from £19bn in May to £20bn in June. Additionally, gross mortgage repayments also increased, reaching £19.8bn month-on-month.

However, the net borrowing of mortgage debt rose to £100m, indicating an increase in mortgage debt overall.

Interest Rate Impact

The report also reveals changes in mortgage interest rates. The average interest rate on newly drawn mortgages rose by seven basis points to 4.63 per cent in June, compared to May. Similarly, the average rate on the outstanding stock of mortgages increased by 10 basis points to 2.92 per cent.

Despite these higher interest rates, mortgage lending has not been significantly affected. Alice Haine, personal finance analyst at Bestinvest, suggests that this might be the calm before the storm. She predicts that mortgage lending could remain weak in the coming months as lenders grapple with the high interest rate and high inflation environment.

Outlook and Future Expectations

While inflation has slightly eased to 7.9 per cent, it is expected to continue decreasing throughout the year, offering some relief to borrowers. However, the Bank of England is still widely anticipated to raise interest rates by 25 basis points in its upcoming meeting to control rising prices.

As the interest rate outlook improves, average mortgage rates have already shown signs of easing. Several major lenders have cut rates, and there are hopes that more lenders will follow suit in the coming weeks.

The mortgage market is undoubtedly facing challenges, but the recent upswing in approvals and borrowing activity indicates that there are better times ahead for prospective homeowners and borrowers.