Recent figures from the British Bankers Association (BBA) show that the number of homebuyer mortgages approved by UK banks in August was down by a fifth year on year. However, unsecured borrowing, in the form of credit cards and loans, remained strong increasing in amounts borrowed.
The new data from the BBA reveals that 36,997 loans were approved for house purchases over the course of August. This is the lowest figure since January 2015 and is 21% lower than the figure for the same month last year. The numbers for those remortgaging also slipped in August with 23,940 loans approved for those switching lenders.
These figures are of loans that were approved in August and therefore were likely to have been applied for some weeks beforehand. This would have been in the period directly after the EU referendum result and is a good indicator for the interest rate reduction by the Bank of England.
BBA’s chief economist, Dr Rebecca Harding, spoke to The Guardian about the findings in the new figures; “The data was collected before the Bank of England reduced interest rates to 0.25%, and so give an indication of some of the underlying pressures that the MPC [monetary policy committee] was responding to when it made this decision,”
The slowdown in the growth of mortgage borrowing reflects a slowdown in the growth of the housing market. It is now thought that demand from homebuyers is weakening despite the fall in mortgage rates since the beginning of the year and the increase in housing stock for sale in August.
According to RICS, the surveyors have seen a decline in new buyer enquiries for the past five months. This is all thought to point towards a prolonged period of weakness in the mortgage lending sector.
Mortgage lending may be suffering but consumer appetite for borrowing still remains strong as consumer credit has grown at a rate of more than 6%. Personal loan and overdraft borrowing has increased over the course of August by £434m while borrowing via credit card is up by £136m.
It is thought that the low interest rates which came into effect in August have had an impact in strengthening the growth in credit. Alongside the increase of consumer credit, BBA has seen a rise in deposits into savings and bank accounts since the start of 2016. Personal deposits are thought to have grown by £27bn this year, this is in comparison with £15bn in the same period last year.
As it takes longer for mortgage lending approvals to go through, in comparison to credit card and loan borrowing, August may just be a blip in the lending levels brought about by the effects of Brexit. However, it may be a sign of a longer downward trend that could be a worry for the economy.
The lower interest rate was designed to help homebuyers in particular, which coupled with the increase in housing stock, should see a boost in mortgage lending. It remains to be seen how the lower interest rate will affect home buying and if Brexit will have a longer term effect than was originally anticipated. This is something those buying and selling property will be watching with a keen interest over the coming months.
If you are thinking of buying or selling a house and you need some advice on how to get the best deal for you, get in touch with an independent financial advisor (IFA) now. They will be able to offer you a complete and impartial picture of the financial market and how it can be of benefit to your situation.