UK property market grinds to a halt as borrowing drops sharply

Mortgage Approvals See Significant Drop as Housing Market Slows

Mortgage approvals in the UK dropped almost 10% last month according to new data from the Bank of England, a sign that rising interest rates are taking a toll on the property market. Approvals fell to 49,400 in July, a five-month low and worse than economists’ expectations of around 51,000. Experts warn further declines are ahead as the impact of rate hikes filters through fully.

Households tighten purse strings

Other data from the central bank shows households pulled back on borrowing and spending in July. The amount borrowed by consumers fell sharply to £1.2bn while an additional £0.4bn was deposited in banks. This suggests individuals’ finances may be stretched thin amid high inflation and living costs. Experts say affordability challenges will mount pressure on property prices.

Analysts foresee more cooling as lag effect kicks in

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Though “effective” mortgage rates approved in July were lower at 4.66%, quoted rates have risen significantly since April. Analyst Andrew Wishart notes approvals usually lag rate changes by 2-3 months, so the downturn may worsen through September. Alice Haine of Bestinvest agrees, saying lending will remain weak as buyer demand is hit by soaring interest payments. Sellers may have to lower prices to complete sales.

Sales set for decade low as activity slows

Figures from property group Zoopla this week estimate 2022 house and flat sales will reach around 1 million, the lowest total since 2012. The weakened mortgage data and analysts’ warnings point to an ongoing slowdown in the market as borrowing costs rise further in response to the Bank of England’s inflation fight. Households and home buyers face challenging times ahead.

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