UK house purchase approvals fall to 18-month low, BBA says

Mortgage approvals for house purchases in the UK fell to an 18-month low, according to the British Bankers Association (BBA), though maintained the level of borrowing remained buoyant in the month after the Brexit vote.

House purchase approvals were down 19% year-on-year to 37,622 in July, down 5.4% from the 39,763 in June, slightly below the consensus forecast of 38,000 and the lowest since January 2015.

Although approvals across the first seven months of the year are 2% higher than last year, economists said the slowing in July fuelled suspicions that house prices could ease back by several percentage points over the coming months.

Gross mortgage borrowing reached £12.6bn in July, the BBA calculated, which was 6% higher than the same month last year, while net mortgage borrowing was 3% higher year-on-year.

Almost all of the decisions to borrow would have been taken before the UK referendum on EU membership.

The growth in consumer credit continues reflected strong retail sales and low interest rates driving demand for personal loans and overdrafts.

Borrowing by non-financial companies increased by £2.3bn in July after a small fall in June, the BBA revealed.

“This month’s BBA High Street Banking statistics are the first set of borrowing figures gathered since the EU referendum," said the association's chief economist, Rebecca Harding. "The data does not currently suggest borrowing patterns have been significantly affected by the Brexit vote, but it is still early days. Many borrowing decisions will also have been taken before the referendum vote."

She added that strong retail sales figures appeared to be closely associated with strong consumer credit growth, saying: “We are also clearly still a nation of shoppers and the Brexit vote has done nothing to change the fact that we use credit cards for short-term purchases.”

On the businesses borrowing data, where annual growth rate has come down from around 10% in 2015 to about 2.5% now, Harding added that the upward trend that characterised the first few months of this year appeared to be continuing.

"June’s data looks like a blip, probably caused by pre-Brexit nervousness. But it is too early to tell how the data over the next few months will reflect the result of the decision to leave the EU."

Economist Howard Archer of IHS Markit noted that mortgage approvals for house purchases have progressively slowed after being buoyed in the first quarter by buy-to-let and second home sectors rushing to beat April’s Stamp Duty increase for these sectors.

Approvals slowed to 121,710 in the second quarter from 135,651 in the first quarter, he pointed out.

"We suspect that house prices could ease back by around 3% over the latter months of 2016 and there could well be a further 5% drop in 2017. This suspicion is fuelled by the BBA reporting that mortgage approvals slowed to an 18-month low in July," Archer said.

Sam Tombs at Pantheon Macroeconomics said the approvals data brought "clear evidence that the Brexit vote has made households reluctant to undertake major financial commitments", with the decline in approvals corresponding closely with the drop in RICS’ measure of new buyer enquiries and indicators of consumer confidence.

"Lending therefore will revive if confidence improves, but the forthcoming stagnation of real incomes, as inflation revives and firms stop hiring, means there’s little reason to expect a substantial improvement in sentiment."

Tombs added that the Bank of England's decision to cut interest rates "will do little to revive the market" as lenders have widened spreads on fixed-rate mortgages to reflect the greater risks of lending currently.

Mark Harris, chief executive of mortgage broker SPF noted that July and August are traditionally quieter times of the year for the market.

"The real test will come in September when people get back from holiday. Then we will see whether they are making decisions to buy or whether they put these on hold until there is further clarity," he said, also wondering how long lenders would retain their appetite to lend at such low rates.