Demand for UK mortgages dropped to a 32-month low in August, with buyers reportedly deterred by rising costs linked to the war in Iran. The Bank of England reported on Tuesday that 54,918 mortgages for new home purchases were approved in August, marking the lowest monthly total since December 2023.
The effective interest rate on newly drawn mortgages increased to 4.60% in August, up from 4.45% in July. Moneyfacts, a financial product data company, stated that the average five-year fixed mortgage rate reached 5.94% on Tuesday, its highest level since October 2023. Two-year fixed mortgages are at 5.93%, the most expensive since July 2024.
Simon Gammon, managing partner at Knight Frank Finance, noted that buying activity weakened over the summer due to rising energy prices pushing up borrowing costs. Lending to homebuyers fell 15% in August compared to the same month last year. Approvals for remortgaging also dipped slightly to approximately 34,000 in August from 34,600 in July.
Analysts, including Katie Clinton, head of financial services advisory at KPMG UK, warned that affordability pressures from the Iran conflict are continuing to weigh on housing demand by pushing up both inflation and mortgage rates. Paul Dales, chief UK economist at Capital Economics, suggested that mortgage rates potentially remaining above 4.5% for most of 2027 could have a greater impact on activity than the government's new "Your First Home" scheme.