Britain’s mortgage market is not weak. It is stuck. The latest run of official data shows demand firming at the margin and house prices still nudging higher, yet the one thing that would ease the squeeze on borrowers, a lower Bank Rate, is further away than the housing numbers alone would suggest.
Start with the credit data. The Bank of England’s Money and Credit release for June, published on 29 July, showed net mortgage approvals for house purchase rising to 58,200, up from 56,600 in May. That is a genuine pick-up, but it still sits below the roughly 61,400 monthly average of the previous six months. Approvals are recovering, not booming. Remortgaging approvals edged up to 34,200 from 33,800. Net borrowing of mortgage debt jumped to £7.7bn in June from £3.3bn in May, above the £4.9bn six-month average, though that line is volatile and reflects the timing of completions as much as any surge in appetite. Net consumer credit borrowing ticked up to £1.8bn from £1.7bn, in line with trend. This is a market with a pulse, not a fever.
The cost of borrowing is not falling
The more telling number sits underneath the approvals. The effective interest rate on newly drawn mortgages rose to 4.35% in June. It is not falling. For anyone rolling off a fixed deal struck before 2022, when two-year fixes could be found comfortably below 2%, that is the whole story: refinancing still means a materially higher monthly payment, and the direction of travel this year has been sideways to up, not down. The approvals recovery is happening in spite of the cost of credit, not because of any relief in it.
That is where the rate backdrop matters. On 29 July the Monetary Policy Committee held Bank Rate at 3.75%, but the vote tells you more than the headline. The split was 6-3, with three members, Megan Greene, Huw Pill and Catherine Mann, voting to raise Bank Rate to 4%. A minority of the committee wanted to tighten policy, not loosen it. The MPC pointed to volatile energy prices in the wake of Middle East tensions and to lingering uncertainty about inflation persistence. There is no cut priced in for the near term, and a live faction arguing the opposite case.
For a household hoping the next move is down, that is the uncomfortable read. Lenders price fixed mortgages off swap rates that reflect where markets expect Bank Rate to go, not just where it sits today. A committee that is split between holding and hiking gives swap markets little reason to price in the cuts that would pull fixed rates lower. The mortgage market can firm all it likes; the rate path is not co-operating.
House prices are cooling, not correcting
The housing numbers fit the same picture of a market that is grinding rather than accelerating. Nationwide’s House Price Index for July showed annual house price growth slowing to 1.8%, down from 2.2% in June. Prices rose just 0.1% on the month, leaving the average home at £277,542. Growth is positive but decelerating, which is exactly what you would expect when affordability is capped by a mortgage rate that will not come down and incomes that are only slowly catching up.
This is the tension buyers and their brokers now have to sit with. Transaction demand is being sustained by pent-up need, wage growth and the simple fact that life events do not wait for the Bank of England. But the affordability ceiling is real and it is not lifting. Approvals can keep grinding higher while price growth cools, because the marginal buyer is stretched to the limit of what a 4%-plus mortgage will bear.
What to watch
Three things will move this story. First, the July Money and Credit data, due on 1 September, which will show whether June’s approvals pick-up was a blip or a trend. Second, Nationwide and Halifax readings for August, which will tell us whether the deceleration in annual price growth is stabilising or continuing. Third, and above all, the tone of the next MPC meeting: whether the hawkish trio grows, shrinks or holds at three is the clearest signal of when, or whether, borrowers get the cut they are waiting for.
The comfortable narrative is that a recovering mortgage market means the worst is over. The data says something more sober. Demand is healing, but it is healing into a rate environment that the Bank of England is in no hurry to soften. Until the vote splits shift, the mortgage market’s recovery is capped by the rate path, and borrowers should plan for the cost of money to stay where it is.
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