The number of home mortgage approvals made to buyers in the UK dropped to a two-and-a-half-year low in May, according to the Bank of England's latest money and credit report. Some 56,200 approvals were recorded, down from 66,000 in April and below the six-month average of 63,300. This marked the lowest level since December 2023.
Impact of Middle East conflict on borrowing costs
Experts attributed the decline to rising mortgage rates following the outbreak of the US-Israel war with Iran at the end of February. Many mortgage deals were pulled and average fixed rates ticked higher amid financial uncertainty prompted by the conflict. Richard Donnell, Executive Director at Zoopla, said: "Average mortgage rates hitting 5% in April, having started the year at 4%, has led to a decline in mortgage approvals for home purchase as buyers adopt a wait-and-see approach."
Remortgaging also falls
Approvals for remortgaging with a different lender also decreased sharply to 33,300 in May from 51,200 in April. Jason Tebb, president of OnTheMarket, noted: "The effective interest rate on newly drawn mortgages increased to 4.22% in May, and the continuing war in the Middle East has kept the cost of borrowing higher for longer."
Signs of recovery ahead
Despite the dip, some experts see positive signals. Lucian Cook, head of residential research at Savills, said: "Over the past month we’ve seen competition return to the mortgage market alongside an easing in headline fixed rates, which should relieve some affordability pressure." Banks and building societies have been cutting mortgage rates in recent weeks as swap rates have fallen. Rachel Springall of Moneyfacts commented: "Mortgage rates have started to come down from their April peaks, so hopefully this will slowly build up momentum."
Consumer credit and savings
The Bank of England data also showed consumer credit borrowing remained largely unchanged at around £1.7 billion in May, while credit card borrowing fell from £800 million to £600 million. Household deposits with banks and building societies increased by £5.4 billion, partly driven by £3.1 billion into Isas, though this was a significant drop from the £12 billion in April.
