Mortgage approvals for house purchases fell to 56,100 in July, from 58,200 in June and below the average of around 60,800 over the previous six months, the latest Bank of England data shows.
Approvals for remortgaging with a different lender held steadier at 34,500, up from 34,100 in June.
Easing approvals come as the average interest rate paid on new mortgages increased from 4.35% in June to 4.45% in July.
Net borrowing of mortgage debt decreased to £4.3bn in July, from £7.7bn in June and below the previous six-month average of £5.3bn.
Gross lending decreased slightly to £25.9bn, down from £26.9bn in June and slightly below the six-month average of £26.4bn.
Mark Harris, chief executive of mortgage broker SPF Private Clients, commented: “Mortgage approvals fell in July and remain below the six-month average, illustrating the concerns and difficulties facing buyers.
“The effective interest rate paid on new mortgages jumped again to 4.45% while the rate on the outstanding stock of mortgages edged up to 3.97%. On the ground, some lenders have been easing mortgage rates in recent days and weeks but swap rates, which underpin the pricing of mortgages, remain extremely volatile in response to tensions in the Middle East.
“Borrowers who need a mortgage in coming months should consider locking into a product as soon as they can to protect themselves from potential rate rises in the short term.
“Remortgaging numbers picked up slightly, suggesting that borrowers may be shopping around for better rates rather than sticking with their existing lender when their current deal comes to an end.”
Richard Pike, sales and marketing director at Phoebus Software, said: “After June's improvement there was hope activity was beginning to stabilise, so a reversal in July is disappointing. But it’s important not to view one month in isolation. Mortgage demand remains sensitive to affordability and the direction of mortgage rates, both of which have continued to move around in recent months.
“The underlying picture is therefore one of a market that is functioning, but with buyers remaining highly selective about when they commit.
“The real question is whether this weakness persists through the autumn. If approvals continue to fall, it would point to a more sustained loss of momentum. If they stabilise and begin to recover, July may prove to have been a temporary setback rather than the start of a wider slowdown.”
Ian Futcher, financial planner at Quilter, added: “The July Money and Credit data paint a picture of a housing market that is losing momentum rather than building on the resilience seen earlier in the year. Mortgage borrowing fell sharply from £7.7bn to £4.3bn and, perhaps more significantly, net mortgage approvals for house purchase dropped to 56,100, well below the recent six-month average of around 60,800. As approvals tend to lead completed transactions, this points to softer activity in the months ahead. At a time when borrowers remain highly sensitive to interest rate expectations, the decline suggests many households are still taking a wait-and-see approach rather than committing to a move.
“While the mortgage market has not stalled altogether, higher borrowing costs continue to act as a brake on demand. The effective rate on newly drawn mortgages rose from 4.35% to 4.45% in July, reversing some of the optimism that had emerged earlier in the summer. For many prospective buyers, affordability remains stretched, and uncertainty over the future path of interest rates is making some reluctant to proceed with major financial decisions.
"With the next Bank of England rate decision approaching, attention will be focused on whether policymakers see enough evidence to make a decision about rates. Until greater certainty emerges, housing market activity is likely to remain subdued and transaction levels may continue to fluctuate from month to month.”
