U.K. Mortgage Approvals Fall to 13-Month Low on Brexit Jitters

  • Lenders sign off on 64,766 loans in month of EU referendum
  • Buyers said to be pulling out, renegotiating since Brexit vote

U.K. mortgage approvals fell to their lowest level in more than a year in June as nervousness gripped the housing market before the referendum on European Union membership.

Banks and mutually owned lenders signed off on 64,766 loans for house purchase, the fewest since May 2015, the Bank of England said on Friday. The figure was down 3 percent from May and below the 65,500 predicted in a Bloomberg survey of economists.

Mortgage demand has weakened sharply since a tax hike on investment properties took effect in April and anecdotal evidence suggests the June 23 Brexit referendum is now also taking a toll.

Prospective buyers appeared hesitant before the vote and the decision to leave the EU has led many people to pull out of deals or renegotiate prices, fearing home values will fall.

Net mortgage lending climbed to 3.3 billion pounds ($4.4 billion) in June, reflecting lower repayments of debt rather than increased loans. Unsecured lending edged up to 1.8 billion pounds. The annual rate of consumer-credit growth was 10.3 percent.

Consumer Blow

Brexit has delivered a blow to consumer confidence, surveys show, and forecasters including Capital Economics Ltd. expect the number of housing transactions to fall sharply. Nationwide Building Society said Thursday that the outlook is unusually uncertain, despite home values rising in July.

Cheap borrowing costs have fueled the housing market -- the effective interest rate on new secured loans was unchanged at 2.41 percent in June -- and they may be about to fall further. Bank of England policy makers are universally forecast to cut the benchmark rate from a record-low 0.5 percent next week in an attempt to shore up the economy.

There is also speculation the BOE will prolong or widen the scope of its Funding for Lending Scheme, which provides incentives to boost loans to small- and medium-sized business.

Lending to non-financial firms rose by 1 billion pounds in June, of which smaller companies accounted for a half, the BOE said. An underlying gauge of M4, a broad measure of money supply, climbed to 8 percent on a 3-month annualized basis.

The BOE also said that overseas investors bought a net 8.14 billion pounds of gilts in June, the most since November and more than double the 3.75 billion pounds purchased in May. U.K. government bonds have returned more than 7 percent since the end of May as concerns about Brexit led investors to seek the safety of fixed-income debt.

The pound has fallen 9 percent against the dollar in the same period. It was up 0.1 percent on the day at $1.3179 as of 9:35 a.m. London time.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE