Mortgage approvals fall in July as housing market shows further signs of slowdown

New home loans slump to 39,600 in July, while credit card lending jumps 8.1%

The volume of home loans fell but the total figure lent has risen (Reuters)

Mortgage approvals fell to 39,600 in July, down from 40,300 in June, as the UK housing market continued to show signs of slowing down.

Despite the fall in new mortgage numbers though, total mortgage lending in July jumped to £24.6bn – 7.6 per cent higher than in the same month last year – with growth driven by homeowners remortgaging to take advantage of ultra-low interest rates, trade body UK Finance reported.

The figures relate to the period before the Bank of England raised interest rates from 0.5 per cent to 0.75 per cent on 2 August, pushing up the cost of borrowing for some homeowners on variable rates.

Credit card spending was 8.1 per cent higher in July than a year earlier. The Bank of England warned in September ballooning consumer credit risked inflicting £30bn of losses on UK lenders, if they continue to underestimate their exposure to bad debt.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said mortgage approvals were set to remain low for the rest of the year.

“Approvals likely will languish at their current low level, given that the new buyer enquiries balance of the RICS Residential Market Survey remained close to zero in July,” he said.

“In addition, the number of people searching for ‘mortgage’ on Google – a good leading indicator of lending activity – was down 3.8 per cent, year over year, in July.”

“Meanwhile, the MPC’s decision to increase [the] bank rate in August likely will hit lending volumes.

“Although the near term impact on fixed rate mortgage rates looks set to be modest, the hike will unnerve many buyers, as only 30 per cent of households in July expected [the] bank rate to rise within the next three months.”

Banks are likely to tighten lending criteria modestly, further restricting new approvals, he added.

The figures also showed personal deposits grew 1.2 per cent over the previous 12 months, while deposits held in instant access accounts were 3.8 per cent higher.

Peter Tyler, director at UK Finance, said the economic outlook remained “mixed” as households would continue to see their incomes being squeezed by rising inflation.

“This may explain the shift towards deposits held in instant access accounts, as consumers opt to keep their money close to hand,“ he said.