Mortgage demand in the United Kingdom reached its weakest point in 32 months during August, with lenders approving just 54,918 mortgages for new home purchases, according to data released by the Bank of England on Tuesday. This figure represents the lowest monthly total since December 2023 and reflects the impact of elevated mortgage rates that have climbed since the outbreak of hostilities in Iran in late February began driving up oil prices globally.
The effective interest rate on newly drawn mortgages climbed to 4.60% in August from 4.45% the previous month, placing additional pressure on prospective homebuyers already grappling with affordability challenges. Financial services professionals attributed the weakness to energy price increases stemming from geopolitical tensions, which have pushed up borrowing costs across the market. Remortgaging activity also softened, with approvals declining to approximately 34,000 from 34,600 in July.
Fixed-rate mortgage offerings have become increasingly expensive, with five-year fixed rates reaching their highest level since October 2023 at 5.94%, while two-year fixed mortgages hit their steepest pricing since July 2024 at 5.93%, according to financial product data company Moneyfacts. Analysts cautioned that these elevated rates would likely constrain housing market activity throughout the coming months, potentially overshadowing the impact of government initiatives such as the recently announced “Your First Home” scheme for first-time purchasers.
The weakness in mortgage demand has translated into declining sales activity, with the number of transactions being agreed in September falling 9% compared to the same period the previous year, according to property portal Zoopla. Meanwhile, house price growth has decelerated to 0.8% annually, the lowest pace since July 2024, with the average UK home valued at £273,000. Supply constraints remain particularly pronounced in London and southern England despite a 5% year-over-year increase in available listings nationally.
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