Mortgage Approvals Plummet to Lowest Level Since December 2023

UK mortgage approvals have fallen to their lowest level in over two and a half years, as elevated borrowing costs and geopolitical inflation shocks suppress housing demand.

The latest data from the Bank of England shows that net mortgage approvals for house purchases decreased to 54,900 in August, down from 55,900 in July. This figure represents the weakest monthly reading since December 2023 and is significantly below the six-month average of approximately 60,100.

The decline in approvals coincides with a notable uptick in the cost of borrowing, with the effective interest rate on newly drawn mortgages increasing to 4.6 percent in August, up from 4.45 percent in July. This rise reflects the broader macroeconomic environment, where inflation concerns driven by the ongoing conflict in the Middle East and subsequent energy price volatility have forced lenders to reprice their risk.

Katie Clinton, head of financial services advisory at KPMG UK, noted that the fall in approvals points to affordability pressures continuing to weigh heavily on demand. She highlighted how shocks from the Iran conflict have pushed up both inflation expectations and mortgage rates, creating a dual barrier for consumers.