British mortgage approvals drop in July as stamp duty holiday tapers off

Consumers made a rare net repayment of mortgage lending last month after record borrowing surge in June

A residential area in London. The shift in mortgage borrowing in July reflects a drop in residential property sales that month. Getty
Beta V.1.0 - Powered by automated translation

British mortgage approvals dropped in July on the previous month when buyers were rushing to complete deals to beat the stamp duty holiday deadline, with consumers making a "rare" net repayment on home loans.

British lenders approved 75,152 loans last month, a drop of 6.4 per cent from the 80,272 recorded in June – the lowest level in a year, according to Bank of England data.

Consumers repaid £1.4 billion of mortgage debt on net in July, only the second time in the past decade that repayments have been bigger than borrowing after a record £17.7bn of net borrowing the previous month.

“Net repayments are relatively rare, with only one other repayment [in April 2020] in the past decade,” the BoE said.

“The net repayment in July followed record borrowing in June, which was probably boosted by the initial tapering off of the stamp duty holiday. Gross lending fell to its lowest since June 2020, at £16.5bn. Gross repayments were a little below the twelve month average, at £18.1bn.”

July was the first full month after the stamp duty holiday was tapered off on June 30, but the approval rate “remains above pre-February 2020 levels”, the BoE said.

The nation is waiting to assess whether the housing market will fall off a cliff after the end of the stamp duty holiday, said Laura Suter, head of personal finance at AJ Bell.

"July’s data suggests the market may be slowing, with £1.4bn of net repayments of mortgage debt in the month," she said.

“However, while mortgage approvals for future purchases fell a bit in July, they are still above pre-pandemic averages – showing signs that the market may remain fairly buoyant. And with the interest rates on mortgage borrowing dropping again, it’s likely that record low rates could keep the market afloat yet.”

The shift in mortgage borrowing in July reflects a drop in residential property sales, with the number of transactions falling 61.5 per cent in July to 82,110 deals on a non-seasonally adjusted basis from 213,120 in the previous month, according to the Office for National Statistics.

UK house price growth also cooled in July, growing at its slowest rate since March, according to the latest Halifax house price index showed, in a signal that tapering the stamp duty holiday has taken momentum out of Britain’s red-hot property market.

Under the tax incentive programme introduced by Chancellor of the Exchequer Rishi Sunak in July last year, the first £500,000 of any property purchase in England or Northern Ireland was exempt from stamp duty until the end of June. Similar measures were offered in Scotland and Wales.

A £250,000 tax-free allowance will expire on September 30 in England and Northern Ireland.

British consumers also curbed their borrowing in July, with borrowing dipping by £42m, the weakest performance since February this year when England was enduring its third coronavirus lockdown, with similar restrictions across the rest of the country.

The UK was hit by a surge in Covid-10 case in July, while a drop in business activity was caused by staff shortages and supply chain challenges aggravated by the spread of the Delta coronavirus strain, as well as strict self-isolation rules which have since been relaxed.

Updated: August 31, 2021, 2:44 PM