Last month witnessed a surge in mortgage approvals, reaching a two-year peak as buyers took advantage of the Bank of England’s first interest rate reduction in four years.

According to official data from the Bank, new mortgage approvals climbed to 62,000 in July, marking the highest monthly figure since September 2022, and an increase from 60,000 in June. This aligns with economists’ forecasts.

In early August, the Bank lowered the interest rate from 5.25% to 5%, with predictions of at least one additional rate cut by the year’s end. This shift is expected to lead to a decrease in mortgage lending rates following a prolonged period of monetary tightening.

Moreover, the total amount of mortgage lending rose to £2.8 billion in July, the largest amount in nearly a year and increased from £2.6 billion in the previous month. Fixed five-year mortgage rates have also dipped below 4% for the first time since early 2024.

Homebuyers were encouraged to enter the market amid falling house prices, which recorded a decline of 0.2% month-on-month in August, as reported by Nationwide.

Rob Wood, the chief UK economist at Pantheon Macroeconomics, indicated that mortgage approvals are poised to increase further in August, given the base rate reduction.

“The decline in borrowing costs, combined with households already accumulating substantial liquid assets, indicates that consumers can enhance their spending in alignment with income throughout the remainder of the year, thereby boosting GDP growth,” he stated.

The rising demand for housing is expected to stabilize prices, projected to rise by as much as 5% by year-end.

Thomas Pugh, economist at RSM, suggested, “We believe the price drop in August is a temporary fluctuation and that house prices and market activity will continue to rebound this year as household incomes improve and interest rates decrease, enhancing affordability.”

Additionally, the decline in borrowing costs contributed to a rise in consumer credit last month, climbing to £1.2 billion in July, which is an increase of £300 million compared to the prior month. This growth was driven by households securing financing for car purchases and personal loans, which also grew by £300 million in August.

Paul Dales, chief UK economist at Capital Economics, remarked, “These figures indicate that households’ financial conditions remain relatively robust, which is consistent with an anticipated strengthening in consumer spending over the upcoming quarters.”