Mortgage approvals fell to the lowest level in six months in August as prospective homeowners stayed away from the property market and average mortgage costs approached 5 per cent.

Data from the Bank of England showed that the number of new mortgages approved in August, an indicator of future borrowing, dropped from 49,500 to 45,000, the lowest level since February, when fears of the state of the US banking system hit the housing market. The drop in approvals was worse than the 48,000 forecast by economists and is below the average of 67,000 a month recorded before the pandemic.

In August the mortgage market was roiled by a sharp increase in market borrowing costs the previous month caused by data showing rising wage growth, which is accelerating at the fastest pace in more than twenty years. The outlook for interest rates has since settled and investors expect only one more increase from the Bank of England, helping to stabilise the mortgage market and allowing lenders to offer better deals.

Separate data showed that the number of house sales fell in August by 16 per cent to 87,010 compared with the same month a year earlier, according to provisional figures from HM Revenue & Customs (HMRC). It was the weakest August for house sales since 2020, when the market was dealing with the impacts of the coronavirus pandemic.

The Bank said that the effective interest rate paid on the average mortgage, across all durations, rose by 0.16 percentage points last month to 4.82 per cent. Data this week from Moneyfacts showed that the average five-year fixed-term mortgage had fallen below 6 per cent.

The Bank’s monetary policy committee kept its base rate unchanged last week at 5.25 per cent, the first no change to borrowing costs since November 2021. Financial markets are forecasting a peak of 5.5 per cent to be hit later this year and monetary policy to remain at this restrictive level for most of next year.

Nicky Stevenson, managing director at the estate agent Fine & Country, said the MPC’s decision had “injected another dose of confidence in the property market. The suggestion that we may have nearly reached the peak in interest rates is encouraging more people to begin or resume their house search. Combined with the traditional seasonal spike in demand, this is helping to drive increased activity this autumn.”

Separate borrowing figures for August showed that consumers loaded up on more debt, with net borrowing up to £1.6 billion, having been stable at £1.3 billion for the past two months. Economists expected no change to net credit last month, with the small increase suggesting that households may be running out of savings to maintain their spending and turning to debt.

Ashley Webb, UK economist at Capital Economics, said the drop of £300 million in household bank deposits “after two consecutive monthly increases, may suggest that households’ finances are becoming more stretched”.