UK property deals surge as banks approve most mortgages since 2022

UK lenders approved 64,900 mortgages in August, according to the Bank of England (BoE), marking the highest number since the “mini-budget” crisis that struck under former prime minister Liz Truss.

Mortgage approvals rose despite the "effective" interest rate on newly drawn mortgages inching up to 4.84% in August, up from 4.81% in July. It marked the highest level in two years, the BoE's Money and Credit report said.

The uptick in approvals suggests a revival in Britain’s housing market, which has gained momentum following the BoE's decision to cut interest rates in August for the first time since 2020.

In August, net mortgage approvals for house purchases rose from 62,500 in July, while approvals for remortgaging also saw a jump from 25,200 to 27,200. This surge follows a period where mortgage lenders lowered rates in response to the BoE's interest rate cut.

Read more: UK house prices rise at fastest pace in two years

Andrew Montlake, managing director at mortgage adviser Coreco, said: “So much for the summer holidays slowing down mortgage demand. Buyers flooded the mortgage market in August, driven by lower rates and a desire to secure deals before potential market turbulence in the upcoming budget. It looks like we’re in for a busy end to 2024.”

Earlier Monday, mortgage lender Nationwide reported that British house prices in September increased by 3.2%. This was the most significant annual rise since November 2022.

Alice Haine, personal finance expert at Bestinvest, said UK households are still under pressure: “Improving mortgage rates and strong income growth have eased the affordability challenge for some buyers in recent months with the Bank of England’s interest rate cut at the start of August and prospect of at least one more rate reduction to come this year energising the residential property market.

“This has not fully filtered through to the mortgage market just yet, as the effective rate on newly drawn mortgages rose by three basis points to 4.84% in August, highlighting that the financial pressures of the past few years have not eased entirely for borrowers.”

When it comes to household borrowing, the BoE reported a slight rise in consumer credit. Net borrowing by individuals reached £1.3bn in August, a modest increase from £1.2bn the previous month. This was driven by higher net borrowing through forms of consumer credit such as car dealership finance and personal loans, the report said.

Read more: UK house sales decline for third consecutive month

The annual growth rate for all consumer credit, which includes credit cards, overdrafts and other loans, was 7.6% in August, slowing from 7.8% in July.

During August, households deposited an additional £7.3bn with banks and building societies, up from £5.9bn in July.

The annual growth rate of borrowing by big businesses rose from 1.7% in July to 2.9% in August, while the annual growth rate of borrowing by SMEs was “little changed” at -4%, the report said.

“Remember, taking on too much credit in a short space of time can cause credit scores to dip and debts to spiral out of control very fast," Haine said. "Workers are also contending with a higher tax burden, with most personal tax allowances either frozen or cut, dragging millions into higher tax bands as their pay increases with chancellor Rachel Reeves poised to deliver more tax ‘pain’ in her 30 October budget."

She added: "Those with niggling credit card debts or oversized overdrafts should strive to clear those liabilities as quickly as possible. Living more frugally where possible, transferring troublesome debts onto a 0% balance transfer card to reduce interest payments, speaking directly to creditors about money concerns and building up an emergency pot to cover unexpected expenses are all effective strategies to get finances back on track."

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