THE number of mortgage approvals plummeted by more than a fifth in July compared to the same month last year, as soaring interest rates take their toll on the housing market.

Banks and building societies authorised 49,444 home loans, the fewest since February, according to the Bank of England.

This was a 9.5% drop from June and a 21.7% drop annually from July 2022 – when 63,179 loans were approved.

The figure is worse than the predicted 51,000 forecast by economists, adding to evidence the property market is experiencing a downturn.

It comes as UK home sales are expected to plunge by more than 20% this year to their lowest level since 2012, according to Zoopla.

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Experts have blamed the Bank of England’s “tentative” approach to managing inflation for the decline in approvals.

Jonathan Samuels, CEO of property lending specialists Octane Capital, said: “This reduction in market activity is the unfortunate consequence of the Bank of England’s tentative approach to managing inflation and while we’ve seen a consistent string of hikes since the closing stages of 2021, the approach taken simply hasn’t been aggressive enough. 

“As a result, the pain being felt by borrowers has been prolonged and this has naturally led to a reduction in appetites where mortgage approvals are concerned.”

Nicholas Christofi, managing director of Sirius Property Finance, added: “This suggests that while the market was starting to gain momentum following the turmoil of last September’s mini--budget, 14 consecutive base rate increases are now taking their toll with buyer sentiment starting to wane. 

“Of course, it’s important to remember that there is a seasonal element at play during the summer holiday period and this could be a contributing factor behind a reduction in market activity. So it will be interesting to see where we stand over the coming months, as we approach what is traditionally a busy time of year in the run up to Christmas.”

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Despite the fall in approvals, net borrowing of mortgage debt by individuals increased for the third consecutive month to £200bn in July, from £100bn in June.

Existing homeowners using a mortgage to buy a house typically account for a third of annual sales.

According to Zoopla, those buyers are now more likely to wait until the outlook for rates becomes more favourable, despite property prices falling in some parts of the UK.

The average rate on a two-year fixed mortgage deal is 6.74%, according to the financial information service Moneyfacts. The typical rate for a longer five-year deal is 6.22%.

Ashley Webb, UK economist at Capital Economics, said: “The full impact from the recent surge in mortgage rates is yet to be felt and housing activity and prices have further to fall in the coming months.”