Net borrowing of mortgage debt by individuals has increased for the third consecutive month, rising to £200m in July compared to £100m in June, the Bank of England’s (BoE) Money and Credit report has found.

The report found that net mortgage approvals were 49,400 in July, down from 54,600 in June, with approvals for remortgaging slightly increasing from 39,100 to 39,300 in the same period.

Gross lending also decreased in this period, falling from £20.4bn in June to £18.7bn in July, with gross repayments decreasing from £19.7bn to £19.1bn.

Personal finance analyst at BestInvest, Alice Haine, said: “Mortgage lending is likely to remain weak over the coming months as buyer demand and spending power continues to get pummeled by soaring interest rates and high living costs. Average mortgage rates may have now softened from their July peak, but that will do little to ease the stress and anxiety for new buyers desperately trying to secure their first deal or those looking to refinance who face significantly higher repayment levels. As affordability challenges mount, property prices will come under increasing pressure, forcing sellers to market their homes more competitively if they want to secure a sale.

“Interest rates on newly drawn mortgages rose three basis points in July to 4.66% from 4.63% in June as lenders responded to stubbornly high inflation. Inflation may have since eased to 6.8% with expectations it will retreat further over the rest of 2023, but with core inflation holding steady at 6.9% it means more rate hikes are on the way.”

The data also found that households deposited an additional £400m with banks and building societies in July, down from £3.8bn in June. The BoE report has said that this was driven by net flows of £10.1bn into interest-bearing time deposit accounts, compared to £6.5bn in June.

Similarly, net flows into ISAs increased to £4.3bn in July, increasing from £2.9bn in June. The increased inflows were mostly offset by net outflows of £10.2bn from interest bearing sight deposit accounts, with households also withdrawing a net £800 from non-interest bearing sight accounts in July, following net deposits of £4.2bn.

The report also found that households withdrew £100m from national savings and investment accounts, following net withdrawals of £200m in June.

Managing director for retail direct at Standard Life, Dean Butler, commented: “The latest figures from the BoE highlight the fragility of UK household finances as levels of borrowing stay high while savings withdrawals continue to largely offset household deposits. The fear now is that we are moving closer to a third wave of the cost-of-living crisis, with high levels of household debt and costly repayments set to follow inflation and rising interest rates.

“It’s hard to break the cycle of debt and under saving. Hopefully, however, with inflation showing signs of falling, average earnings rising and interest rates thought to be close to their peak, we’ll start to see many households move back into the black as we move through the next few months. It’s far easier said than done but in the meantime it’s worth anyone who is struggling each month thinking about cancelling any unnecessary monthly expenses before taking on high-interest credit debt, and, if possible, keeping a level of rainy day savings to cover unexpected costs.

“People above minimum pension age who might be looking at using their retirement savings earlier than planned should of course consider all their options, particularly if under huge financial pressure, but make sure there will be enough left to cover the rest of their retirement.”

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