Key facts
- UK mortgage approvals for new home purchases fell to a 32-month low in August.
- Just 54,918 mortgages for new home purchases were approved in August.
- The effective interest rate on newly drawn mortgages rose to 4.60% in August.
- Approvals for remortgaging dipped to about 34,000 in August.
- The average five-year fixed mortgage rate was 5.94% on Tuesday.
- The average two-year fixed mortgage rate was 5.93%.
Demand for UK mortgages has fallen to its lowest level in 32 months, according to Bank of England data released Tuesday. In August, only 54,918 mortgages for new home purchases were approved, a figure not seen since December 2023. This decline is attributed to rising borrowing costs, exacerbated by the ongoing conflict in Iran which has pushed up oil prices and inflation, dampening hopes for interest rate cuts.
Simon Gammon, managing partner at Knight Frank Finance, noted that buying activity weakened over the summer due to increased energy prices driving up borrowing costs. Lending to homebuyers decreased by 15% in August compared to the previous year. Remortgaging approvals also saw a slight dip to approximately 34,000 in August from 34,600 in July.
The Bank of England reported that the effective interest rate on new mortgages rose to 4.60% in August, up from 4.45% in July. Analysts suggest these higher borrowing costs are significantly impacting the housing sector. Katie Clinton, head of financial services advisory at KPMG UK, stated that the continued fall in mortgage approvals indicates ongoing affordability pressures on housing demand, further intensified by the Iran conflict's effect on inflation and mortgage rates. She also noted that the drop in remortgaging suggests a softening in refinancing demand, even as many borrowers approach the end of their fixed-rate terms.
Financial product data company Moneyfacts reported that the average five-year fixed mortgage rate reached 5.94% on Tuesday, its highest since October 2023. Similarly, two-year fixed mortgages are at their most expensive since July 2024, priced at 5.93%. Paul Dales, chief UK economist at Capital Economics, cautioned that the prospect of mortgage rates remaining above 4.5% through most of 2027 could have a greater impact on market activity than the government's recently announced "Your First Home" scheme for first-time buyers.