The Bank of England released data on Friday indicating that UK mortgage approvals surged to a 22-month peak in July, driven by the anticipation of further interest rate reductions which attracted homebuyers to the market.
Specifically, net mortgage approvals for house purchases rose from 60,600 in June to 62,000 in July, marking the highest level since September 2022 and surpassing economists' prediction of 60,500.
Additionally, individuals' borrowing of mortgage debt increased to £2.8 billion in July, up from £2.6 billion in June, reaching the highest level since November 2022.
Conversely, gross lending declined to £19.6 billion from £20.5 billion, while gross repayments reduced by £0.9 billion to £17.4 billion.
The 'effective' interest rate, representing the actual interest paid on newly drawn mortgages, remained broadly stable at 4.81 percent in July.
Net consumer credit borrowing climbed to £1.2 billion in July from £0.9 billion in June. Within this category, net borrowing through credit cards maintained stability at £0.5 billion, while net borrowing via other forms of consumer credit saw a moderate increase to £0.7 billion.
The annual growth rate for total consumer credit remained relatively constant at 7.8 percent in July.
Businesses, on the other hand, repaid £0.2 billion of bank and building society loans compared to borrowing £1.6 billion in June. Net borrowing by large non-financial businesses decreased markedly to £0.1 billion in July from £2.4 billion in June. Similarly, net repayments by small- and medium-sized non-financial businesses dropped to £0.3 billion from £0.8 billion in June.
Paul Dales, an economist at Capital Economics, noted that the latest data points to a gradual improvement in the flow and demand for credit, which is underpinning the economic recovery. However, he also cautioned that substantial credit growth is unlikely until the Bank of England enacts more significant interest rate cuts.
In its August meeting, the BoE lowered its benchmark rate for the first time since the coronavirus pandemic's onset, reducing the bank rate by 25 basis points to 5.00 percent from 5.25 percent, the highest level since early 2008.
