Demand for mortgages in the United Kingdom reached its lowest point in 32 months during August, according to data released by the Bank of England on Tuesday. The number of mortgages approved for new home purchases totaled 54,918, representing the weakest monthly performance since December 2023. The decline reflects broader economic pressures stemming from geopolitical developments that have rippled through financial markets.
The mortgage market slowdown has been attributed to elevated borrowing costs that emerged following the outbreak of conflict in Iran in late February. Rising energy prices resulting from the regional tensions have pushed up inflation and mortgage rates, making home purchases less affordable for potential buyers. The effective interest rate on newly drawn mortgages climbed to 4.60% in August from 4.45% in July. Additionally, remortgaging applications declined to approximately 34,000 in August from 34,600 in July, suggesting that refinancing activity has also weakened.
Market observers have highlighted the significant headwinds facing the housing sector. Fixed mortgage rates have climbed to levels not seen in recent years, with five-year fixed rates reaching 5.94% and two-year fixed rates hitting 5.93%. Housing market data compiled by Zoopla indicates that the number of sales being agreed this month fell 9% compared with the same period last year. While housing inventory increased by 5% annually, supply gains have not offset softening demand, particularly in London and southern England. Annual house price growth has decelerated sharply to 0.8%, the lowest rate since July 2024, with the average UK home price standing at £273,000.
Analysts have cautioned that the persistence of elevated mortgage rates will continue to constrain housing activity. Economists project that borrowing costs remaining above 4.5% throughout most of 2027 would likely have a more substantial impact on housing demand than recent government initiatives designed to support first-time homebuyers.
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