UK Mortgage Approvals Plummet to Two-Year Low Amid Borrowing Costs

UK mortgage approvals have fallen to their lowest level since December 2023 as borrowing costs and living expenses weigh on housing demand. According to the Bank of England's latest money and credit data, 54,900 mortgages were approved for a house purchase in August, down from 55,900 in July.

This marks the fourth consecutive month with fewer than 60,000 mortgage approvals, and is below the average of about 60,100 over the previous six months. The number of remortgaging approvals also decreased to 34,000 in August, from 34,600 in July.

The effective interest rate on newly drawn mortgages increased to 4.6% in August, from 4.45% in July, reflecting the actual interest paid on home loans. Experts attribute the decline in mortgage approvals to affordability pressures and expectations of higher interest rates in the months ahead.

Katie Clinton, head of financial services advisory at KPMG UK, noted that 'a further fall in mortgage approvals in August points to affordability pressures continuing to weigh on housing demand.' Matt Swannell, chief economic adviser to the Item Club, predicted that mortgage rates will remain close to 5% for the rest of this year and into next.