No August lull for mortgage market

• Summer heatwave has minimal effect on UK mortgage approvals
• Loan approvals up compared to July but down year-on-year
• Effect of base rate rise to be felt in coming months

While the UK enjoyed a third successive month of scorching temperatures, the mortgage market showed no sign of cooling down during August, with approvals up compared to July.

The latest Mortgage Monitor from e.surv, one of the UK’s largest residential chartered surveyors, found that there were 66,543 mortgages approved during August (seasonally adjusted).

This is 2.7% higher than the approval level recorded in July, although this figure is down 0.7% compared to August 2017.

While unseasonably hot weather is often thought to cause a slowdown in the property market, as potential buyers spend their time enjoying leisure activities, this does not appear to have been the case in August.

Perhaps the more favourable housing market, where prices have stopped rising as quickly as previously, has tempted more buyers into the market, particularly first-time buyers.

Data shows that the proportion of mortgages approved to borrowers with small deposits, including many first-time buyers, increased between July and August.

This month 22.8% of all loans went to this part of the market, higher than the 22.1% recorded a month ago.

The Bank of England made the historic step of raising the base rate to 0.75%, its highest level since 2009, on August 2.

This may also have prompted increased levels of activity this month, as borrowers try to lock in a low fixed rate deal while borrowing is still relatively cheap.

Richard Sexton, a Director of e.surv Chartered Surveyors, comments:

“While many Brits were spending their time in the garden and at the beach, others were finding their dream home this month.

“August is traditionally a quiet month for the UK’s housing market but activity remained strong this year.

“Borrowers were racing to remortgage and seal a competitive mortgage, prompted by the rise in the Bank of England base rate.

“Strong activity should continue into September and October as homeowners receive their new, higher mortgage bills and look to switch.”

Monthly number of total sterling approvals for house purchases (seasonally adjusted):

Large deposit borrowers see market share squeezed in August

Borrowers with large deposits saw their market share squeezed during August, as activity increased in other areas of the market.

Large deposit borrowers – defined by this survey as having a deposit of 60% or more – saw their market share fall from 33.8% to 32.5% between July and August.

In the same timeframe, small deposit borrowers saw their market share increase from 22.1% to 22.8%.

There was a similar increase in the proportion of mid-market borrowers, with 44.7% of all approvals going to this segment of the market compared to 44.1% in July.

Thanks to their increased market share, the number of small deposits borrowers was 15,172, compared to 14,716 a month ago.

Richard Sexton, a Director of e.surv Chartered Surveyors, comments:

“There was a small shift toward small deposit borrowers this month, but the number of large deposit borrowers continued to outstrip this market segment.

“All types of borrowers, regardless of deposit size, are being tempted into the market by historically low mortgage rates and favourable criteria at mortgage lenders.”

Proportion of large deposit loans by region:

Mixed picture across the UK for those with large deposits

While those with larger deposits tend to have an easier time accessing finance in the UK mortgage market, these borrowers have a different experience depending on where in the country they are looking to buy.

London continued to be the market which is most dominated by large deposit buyers. Some 41.5% of all loans in the capital went to this part of the market, although this was slightly down on the 42.1% recorded a month ago.

The South East also saw a high proportion of these borrowers, at 38.8%.

At the other end of the scale, Yorkshire had the lowest proportion of small deposit borrowers in August. Just 23.9% of all loans went to this part of the market this month.

Yorkshire was one of just two regions where more loans went to small deposit borrowers than their large deposit counterparts.

Yorkshire saw 30.9% of approvals go to small deposit borrowers, versus the aforementioned 23.9% for larger borrowers.

In the North West small deposit borrowers accounted for 29.7% compared to 25.5% for the rival market segment.

Northern Ireland had the largest proportion of small deposit borrowers, at 31.9%.

London was the most difficult market for those with small deposits to contend with, as just 12.1% of all loans went to those with small deposits during August.

In the South East this figure was 18.1%.

Proportion of small deposit loans by region:

Richard Sexton, a Director at e.surv Chartered Surveyors, concludes:

“Having a large deposit usually gives borrowers access to the cheapest mortgage rates, but there are still equally good opportunities for those with less cash to splash.

“While small deposit borrowers, such as first-time buyers, may find it difficult in markets such as London, northern regions and Northern Ireland have a host of great opportunities for these borrowers.

“Even in the capital, prices are declining gently following a prolonged period of rises, meaning salaries can play catch up and borrowers can find their ideal home.”

Data source: e.surv Chartered Surveyors

Data from: August 2018