Mortgage slowdown sign of ‘more significant drop off to come’

Following a record month of net borrowing in June which reached £17.9bn, July experienced a slowdown in mortgage lending and approvals, according to the latest Bank of England data.

The number of mortgages approved for home purchases in July came to 75,200, down 6.4 per cent on the 80,300 approved in June.

Alongside a dip in mortgage borrowing and approvals, house sales slumped 63 per cent in July. HM Revenue & Customs figures saw just 73,740 property transactions last month, compared with 213,120 in June.

Spencer Wyer, vice president of product and technology at property market analysis firm Hometrack, said mortgage application data in August - typically a few months ahead of approvals - is showing “an ongoing drop in activity”.

“Looking ahead, we may anticipate a more significant drop off to come,” he concluded. “That said, we’ve only seen mortgage volumes in August drop half as much as we’d expect in a normal holiday season - probably due to the lack of holiday options and ongoing Covid-19 restrictions.”

Andrew Montlake, managing director of London-based independent mortgage broker Coreco, said “demand is still very much there”, as he dubbed the fall in mortgage approvals for July an inevitability after the stamp duty holiday wind down.

On July 1 the tax-free rate fell from no stamp duty on the first £500,000 of a property, to no stamp duty on the first £250,000.

“What's lacking is the supply to match [demand],” said Montlake. 

Looking ahead, we may anticipate a more significant drop off to comeSpencer Wyer

Experts are concerned the market is suffering under a lack of available housing, which isn’t expected to resolve itself until next year despite government initiatives to boost it.

“The continued lack of stock is the issue for many as we head into autumn,” said Tomer Aboody, director of property lender MT Finance.

“Without some sort of extended stamp duty holiday for downsizers, there is little incentive for older homeowners to move to a smaller property and free up family homes.'

Aboody said the “slowing down and recalibrating of the market is to be expected”. 

So far confidence remains strong, he said but he reckons the UK’s decreasing housing stock could abate some of this confidence.

Borrowing has been aided by lenders cutting their rates to historic lows in an effort to keep up momentum in the market.

In July, the ‘effective’ UK mortgage interest rate on newly drawn mortgages decreased 12 basis points to 1.83 per cent, according to the Bank of England's Money and Credit report.

The government distributed billions to build affordable housing today (August 31), the effects of which won’t be felt for some months to come.

Imran Hussain, director of Nottingham-based independent mortgage broker Harmony Financial Services, said “the lack of properties for sale remains a problem”, despite demand from first-time buyers being “still strong”.

What is on the up, however, is remortgages - something experts have been anticipating for some months now.

Approvals for remortgages rose to 37,400 in July, from 35,800 in June, according to the Bank of England. Though it did say this remained low compared to the months running up to February 2020.

“Remortgages for debt consolidation purposes have risen, especially due to the low rates currently available as borrowers look to lock into the best possible fixed rate deals to control their outgoings,” said Hussain.

Lewis Shaw, founder of Mansfield-based mortgage broker, Shaw Financial Services, said he also noticed “a lot of people wanting to consolidate debt into their mortgage” in July. “Perhaps as a result of struggling to manage through the pandemic,” he explained.

Richard Pike, Phoebus Software’s sales and marketing director, echoed Shaw's comments.

He said the mortgage market “has not come to a grinding halt”, with the remortgage market “running at a healthy pace” as borrowers increase their facilities to fund improvements on existing properties or release equity. 

ruby.hinchliffe@ft.com