Demand for mortgages in the United Kingdom reached its weakest level in 32 months during August, with the Bank of England reporting just 54,918 approvals for new home purchases. This marked the lowest monthly total since December 2023 and reflected broader pressures on the housing market stemming from geopolitical tensions affecting energy costs and borrowing expenses.
The conflict in Iran, which began in late February, contributed to increased oil prices that rippled through the broader economy, pushing up mortgage rates and eroding appetite for home purchases. The effective interest rate on newly drawn mortgages climbed to 4.60% in August from 4.45% in July. Fixed-rate mortgages became increasingly expensive, with five-year deals reaching their highest level since October 2023 at 5.94%, while two-year fixed mortgages hit their costliest point since July 2024 at 5.93%.
Analysts attributed the decline to affordability challenges created by elevated borrowing costs. Mortgage approvals for homebuyers declined 15% year-over-year in August, while remortgaging applications dipped slightly to approximately 34,000 from 34,600 the previous month. Property portal Zoopla reported that agreed sales fell 9% in September compared with the same month a year earlier, despite an increase in available inventory.
House price growth has decelerated significantly, slowing to 0.8% annually—the weakest pace since July 2024—with the average UK home priced at £273,000. Economists cautioned that elevated mortgage rates would likely constrain housing activity throughout 2027, potentially outweighing the effects of newly introduced government support programs for first-time purchasers.
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