THE number of mortgages approved by the big UK banks for house purchase dropped in July to the lowest level since January last year, with economists citing the impact of the Brexit vote on confidence.

Seasonally-adjusted figures published yesterday by the British Bankers’ Association showed the number of mortgages approved for house purchase fell by about five per cent to 37,662 in July, from 39,763 in June. And the number of mortgages approved in July for house purchase was down by nearly 19 per cent on the same month of last year.

Hansen Lu, property economist at consultancy Capital Economics, said: “Mortgage approvals for house purchase weakened in July, as the effect of the Brexit vote knocked confidence. And, while buyer sentiment has partially rebounded, lending is set to stay weak until the end of the year as the economic backdrop softens and uncertainty persists.”

He added: “Looking ahead, the next few months will see opposing forces at work on the mortgage market. With the political situation having stabilised, some of the initial shock has abated. Indeed, this can be seen in house price expectations surveys, which point to a slight rebound in sentiment towards the end of the month. Thus, some buyers who were scared off might return to the market.

“At the same time, as the prospect of Brexit starts to hit the real economy, mortgage activity will face some fresh downward pressure. Furthermore, with the shape of any Brexit settlement still up in the air, both buyers and lenders could be forgiven for acting with caution. As a result, we think mortgage approvals are set to stay muted until the end of the year.”

Separate figures published yesterday by the Council of Mortgage Lenders, largely covering the period before the June 23 referendum on European Union membership, showed home buyers north of the Border borrowed £2.2 billion for house purchase in the second quarter. This was down by one per cent on the same period of last year, but up by 23 per cent on the opening quarter of 2016.

Scottish home buyers took out 16,500 loans in the second quarter, down by four per cent on the same period of 2015 but up by 23 per cent on the opening three months of this year.

The CML said first-time buyers remained a key driver of the market.

First-time buyers in Scotland borrowed £920m, up by two per cent on the same period of last year and 42 per cent more than in the first quarter of 2016. This was made up of 8,500 loans, representing a rise of four per cent year-on-year and an increase of 39 per cent quarter-on-quarter.

Carol Anderson, who chairs the CML in Scotland, said: “This is the 19th successive quarter of growth in first-time buyers compared to a year earlier, and is the highest quarterly number of first-time buyer loans since mid-2007. So, although the data reflects pre-EU referendum, it suggests the Scotland market is in good shape.”

The BBA figures showed borrowing by non-financial companies from the big UK banks rose by £2.3bn in July after a small fall in June.

Howard Archer, chief UK economist at IHS Global Insight, said: "It looks like businesses borrowed more from banks in July rather than using capital markets."