In August, a noticeable dip was observed in UK mortgage approvals, as they fell to their lowest in the past six months. According to data from the Bank of England, net mortgage approvals for house purchases went down from 49,500 in July to 45,400 in August. To provide a broader perspective, this is a decline of a third when compared to the same month in the preceding year.
Notably, the last time lenders approved such a low number of home loans was in February of this year. Many industry watchers view this as the most recent indication that the continuous hikes in UK interest rates since December 2021 are discouraging prospective homeowners.
House Sales & Cash Buyers: A Silver Lining?
HMRC’s separate dataset brings another layer to this narrative. The number of house sales in August has fallen compared to the previous year. Specifically, an estimated 87,010 home sales occurred throughout the UK, a decrease of 16% when juxtaposed against August 2022.
But there’s a slight twist. Despite the overall drop in sales, there was a 1% increase compared to July 2023. This uptick is attributed to cash buyers – individuals with enough financial liquidity to acquire property without necessitating a loan. Their continued activity in the market is seen by some as a safety net, preventing a more drastic market plummet.
Forecasting the Future: Prices, Predictions & Concerns
The property market’s trajectory has concerned many stakeholders. Renowned estate agent Knight Frank anticipates an even steeper decline in property values this year than previously projected. The firm has revised its prediction, now expecting UK house prices to drop by 7% in 2023. Furthermore, it warns of an additional 4% decrease in 2024.
Knight Frank points out that the cost of borrowing has surged after an unprecedented era post the global financial crisis. This era witnessed almost zero interest rates for over a decade. As the market adapts to this “return to normality”, factors like the mini-budget and inconsistent inflation data have introduced heightened volatility for those transacting in property in the recent past.
Martin Beck, EY Item Club’s chief economic adviser, doesn’t paint a rosy picture either. He comments that despite the Bank of England’s data, the housing market is “in the doldrums”. Beck opines that even if the central bank begins to slash interest rates to counteract rising unemployment and possible recession threats, the housing market might not see an immediate revival.
Remortgaging & First-time Buyers
It’s not just the new home loans seeing a downturn. Net approvals for remortgaging have faced a significant drop from 39,300 in July to a mere 25,000 in August. This is the lowest such figure since July 2012.
Adding to the market woes is a report from earlier this week which indicated that first-time buyer numbers have shrunk by over a fifth. The escalating costs associated with mortgages have made the initial step onto the property ladder unattainable for many.
In Conclusion
For those considering property investments or looking to purchase their first home, understanding the market’s nuances has never been more crucial. With fluctuations in mortgage approvals, interest rates, and house prices, potential buyers and investors must approach the market with both caution and informed perspective. Whether this cooling period is a brief lull or the beginning of a more prolonged downturn remains to be seen. But staying informed will be key to navigating the path ahead.