UK mortgage approvals fall to lowest level since December 2023 as borrowing costs rise

The Bank of England reported on Tuesday that UK approvals for mortgages to buy homes fell to about 54,900 in August, their lowest level since December 2023. The effective interest rate on newly drawn mortgages rose to 4.60% from 4.45% in July, showing that buyers taking out loans faced higher borrowing costs even as fewer purchases moved towards financing.

The Guardian gave the seasonally adjusted approval count as 54,918, while the Bank rounded it to 54,900 in its monthly Money and Credit release. Approvals are an indicator of future borrowing, rather than a count of completed home sales. The August total was down from the Bank’s revised July figure of 55,900 and below the previous six-month average of about 60,100.

Fewer approvals, higher rates

The decline was not confined to loans for purchases. Approvals for remortgaging fell to 34,000 in August from 34,600 in July, the Bank said. Its remortgage series counts switches to a different lender, so it does not cover every borrower arranging a new deal when an existing fixed rate ends.

The Bank’s effective rate measures interest actually paid on newly drawn mortgages. It increased by 0.15 percentage points between July and August. The effective rate on the outstanding stock of mortgages rose more slowly, to 4.00% from 3.97%, reflecting the rates paid across existing loans as well as newer borrowing.

Moneyfacts had already reported a rise in two-year fixed rates earlier in September: its average reached 5.63% on 7 September. The later 5.93% figure reported by the Guardian points to a further increase in the advertised average during the month. August approvals and Tuesday’s quoted product rates cover different periods, so the latest product prices cannot alone explain the August approval count.

What is behind the slowdown?

The Guardian linked rising UK mortgage rates to higher energy prices and diminished expectations of interest-rate cuts since the Iran war began in late February. That is an explanation of pressure on borrowing costs, not proof that the conflict alone caused the August fall in approvals. The Bank’s figures show how approvals and effective rates changed; they do not isolate the reasons individual buyers postponed or abandoned purchases.

Simon Gammon, managing partner at Knight Frank Finance, told the Guardian that buying activity had weakened through the summer as rising energy prices pushed up borrowing costs. He said lending to homebuyers was 15% lower in August than a year earlier. His comparison puts the monthly decline in a wider annual context, although the Bank’s latest release does not itself assign a cause to the change.

Katie Clinton, head of financial services advisory at KPMG UK, also told the Guardian that affordability pressures were weighing on housing demand. She cited the Iran conflict’s effects on inflation and mortgage rates. On remortgaging, Clinton said the fall suggested refinancing demand had softened even as many borrowers reached the end of existing fixed-rate deals.

Borrowing and the next release

A fall in approvals did not mean all mortgage borrowing contracted in August. The Bank reported that net mortgage borrowing increased to £4.4 billion from £4.1 billion in July, although it remained below the previous six-month average of £5.2 billion. Gross secured lending fell to £23.6 billion from £25.3 billion. The measures capture different stages and types of borrowing, so they need not move in the same direction in a given month.

The latest release also shows why the approval figure matters beyond a single month: approvals indicate borrowing that may follow, while net lending records borrowing after repayments. The next Bank of England Money and Credit release is scheduled for 29 October. It should show whether the drop in purchase approvals continued after August; Tuesday’s data establish the decline so far, not its duration.

Paul Dales, chief UK economist at Capital Economics, told the Guardian he expected mortgage rates to remain above 4.5% for most of 2027. He said that prospect could have a larger effect on housing activity than the government’s newly announced Your First Home scheme. That is a forecast and comparison, not an outcome established by the August figures; the scheme’s effect and the future path of rates remain open questions.