UK mortgage approvals fall for third month in a row - BBA

Numbers of mortgages loans approved in the UK dropped off for the third consecutive month in August, according to data from the banking industry published on Monday.

The British Banking Association (BBA) announced that loans for house purchases fell to a new 19-month low of 36,997 from the revised previous figure of 37,672 a month before and very slightly below the consensus estimate of 37,100.

Despite mortgage rates falling since the start of the year, mortgage approvals in August were down 20% since January and down 21% year-on-year.

However, the BBA's high street banking statistics report revealed gross mortgage borrowing grew 1% to £12.4bn in the month compared to the same month last year.

The data was collected before the Bank of England reduced interest rates to 0.25%.

BBA chief economist Dr Rebecca Harding said these statistics "pointed to a softer housing market, strong consumer credit and slightly weaker business borrowing" and gave an indication of some of the underlying pressures that led the BoE's monetary policy committee to make its rate cut.

"Mortgage borrowing is growing at a slower pace than it has for the last few months reflecting both the slowdown in housing market growth after the April spike and broader trends in the sector," she added, with approvals having fallen from 39,787 in June and 41,676 in May and the 23-month high of 46,335 in January.

Harding added: "Given the low interest rate environment and high levels of confidence during the summer, the strong credit growth can be interpreted as strong consumer sentiment."

Business account deposits grew at an annual rate of 3.8% in August 2016 compared to 9% in August 2015, which Harding suggested could be evidence that companies are using their own internal resources to fund working capital and growth requirements.

Economist Samuel Tombs at Pantheon Macroeconomics noted that house purchase demand was continuing to weaken, despite the steady fall in mortgage rates since the start of the year.

"Admittedly, it is too soon to see the full impact of the MPC’s interest rate cut on mortgage approvals, given the time it takes for loan applications to be approved," he said. "Still, a small majority of surveyors reported that new buyer enquiries fell in August, according to RICS, the fifth consecutive month of declining demand.

"Meanwhile, the outlook for stagnation in households’ real incomes next year, as inflation picks up and hiring slows sharply, points to a prolonged period of weakness in mortgage lending ahead."