Bank of England mortgage approvals - July 23 - reaction

This data from the Bank of England confirms exactly what we're seeing on the ground. We've seen a drop of 31% in mortgage approvals for house purchase during July and August to date. However, this has largely been offset by an increase in demand for both remortgages and second charge loans as people react to the situation around them and, in many cases, consolidate unsecured debt. As more lenders release favourable product transfer terms, this was to be expected and we are finding many borrowers are opting to consolidate their current position rather than move home during these uncertain times. Much of the work we're dealing with is leaning towards existing homeowners with equity at the expense of first-time buyers, who face a potentially daunting time to jump into the housing market. People are resilient, though, and we expect the first-time buyer sector to recover as the year progresses, especially if house prices come under further pressure.

Though house prices are seeing their largest falls for over a decade, rising mortgage rates and the cost of living crisis have cooled demand among home buyers as a whole. However, falling house prices have provided opportunities for first-time buyers, particularly in regions where affordability is less challenging such as in the North. Remortgage activity has remained relatively robust, as homeowners seek to lock into interest rates before further increases. Buy-to-let investors continue to face headwinds, with reduced activity due to measures like the additional stamp duty and changes to mortgage expense offsetting for landlords.

July was exceptionally busy, but August has been much slower. Higher interest rates are really starting to feed through into the housing market with affordability concerns weighing down heavily on buyers. Remortgages remain solid as existing homeowners have little choice but to consider moving their loans to another deal with the same lender. This is especially the case given that lenders' standard rates are currently averaging around 8%. Many lenders are offering attractive rate switch deals and it is this, rather than affordability issues, that is making many borrowers stick with their existing lender. Buy-to-let remains very quiet, although many portfolio landlords are going through a process of incorporating their properties to take advantage of tax breaks. First-time buyers remain cautious, as they are entering a market that is very uncertain. We expect the remaining months of 2023 to be quiet, though this could change if inflation starts to fall noticeably.

Personally, August has been the best month as a business we have had in 2023, with roughly a 50/50 split between remortgage and new purchase cases. First-time buyers remain very active in Scotland with properties up to £250k still proving popular with competitive closing dates commonplace and 5%-10% above home report valuations considered the norm. The middle and top ends of the market, in contrast, are sporadic at best with new buy-to-let business virtually extinct. Existing borrowers are generally opting to stay with their current lenders as - if available - any potential savings from switching are deemed not worthy of the additional underwriting and affordability assessments. Typically, the majority are opting for shorter term fixed deals in the hope that lower rates may be available in a couple of years or so. Assuming no disappointing inflation data in the coming weeks, the final quarter of 2023 look likely to continue in a similar relatively settled vein.

July was incredibly busy with remortgage transactions, driven in no small part by the seemingly endless short-notice rate increases we saw. August has quieter, as you would expect, due to the school holidays. However, as prices come down, demand from first-time buyers is on the up. We have seen a handful of first-time buyer purchase cases as well as the usual remortgage work in recent weeks. I predict much of the same for the rest of the year. There will be a smattering of purchase cases but our workload overall looks set to be more remortgage-heavy.

Demand has definitely weakened over the summer. Borrowers were spooked by much higher rates and it's stalled the market. The good news is that with inflation falling, mortgage rates, whilst still high, are starting to fall again.