UK Mortgage Approvals Hit 5-Month Low

(RTTNews) - UK mortgage approvals declined more than expected to a five-month low in July as higher interest rates act as a drag on the housing market, data from the Bank of England revealed on Wednesday.

Approvals for house purchases, an indicator of future borrowing, declined to 49,444 in July from 54,605 in June. That was below economists' forecast of 51,000.

The 'effective' interest rate, which is the actual interest paid on newly drawn mortgages, rose by 3 basis points to 4.66 percent in July. Mortgage lending increased for the third month in a row in July. Net lending doubled to GBP 0.2 billion from GBP 0.1 billion in June.

Gross lending rose to GBP 18.7 billion from GBP 20.4 billion. Meanwhile, gross repayments decreased to GBP 19.1 billion from GBP 19.7 billion.

Data showed that consumer credit fell to GBP 1.2 billion, in line with expectations, from GBP 1.6 billion in the prior month. The drop was driven by a fall in borrowing through other forms of consumer credit to GBP 0.6 billion from GBP 1.0 billion in June. On the other hand, borrowing on credit cards remained broadly unchanged at GBP 0.6 billion.

Further, data showed that companies borrowed GBP 0.5 billion in July in contrast to net repayments of GBP 6.0 billion in June. Borrowings by large companies rose to GBP 0.9 billion, while small and medium-sized businesses repaid GBP 0.3 billion in July.

The BoE has raised its benchmark rate over the last fourteen consecutive meetings, taking the rate to the highest since early 2008.

Capital Economics' economist Ashley Webb said the drag on bank lending from higher interest rates is likely to intensify as the BoE presses ahead with another quarter point hike in September and keeps rates there until the second half of 2024.