The number of home mortgage approvals made to buyers 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 marks the lowest figure since December 2023.
Impact of Middle East Conflict on Borrowing Costs
Experts attributed the decline to the war in the Middle East, which pushed up borrowing costs and dampened buyer demand. The outbreak of the US-Israel war with Iran at the end of February led to rising mortgage rates, with many deals pulled and average fixed rates ticking higher amid financial uncertainty.
Jason Tebb, president of OnTheMarket, said: “Approvals for house purchases, a useful measure of market activity as they indicate future borrowing, fell in May as ongoing political and economic uncertainty had an impact on buyer and seller decision-making. With the effective interest rate on newly drawn mortgages increasing to 4.22% in May, the impact of higher borrowing costs is also making itself felt. The continuing war in the Middle East, which has pushed up inflation and energy prices, has kept the cost of borrowing higher for longer.”
Remortgaging and Consumer Credit Trends
Approvals for remortgaging with a different lender also decreased sharply to 33,300 in May from 51,200 in April. Meanwhile, consumer credit borrowing remained largely unchanged at around £1.7 billion, but net credit card borrowing fell from £800 million to £600 million. Household deposits increased by £5.4 billion in May, partly driven by £3.1 billion into Isas, though this was a significant drop from the £12 billion in April.
Outlook and Market Reactions
Despite the downturn, some experts see signs of recovery. Lucian Cook, head of residential research at Savills, said: “After a couple of unexpectedly robust months for mortgage approvals that have sat at odds with other weaker housing signals, May’s figure provides something of a reality check. That 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 for new buyers.”
Rachel Springall, finance expert for Moneyfacts, noted: “Mortgage rates have started to come down from their April peaks, so hopefully this will slowly build up momentum in the months ahead, and no doubt borrowers will be hoping for more stability in the market.”
Rob Wood, chief UK economist for Pantheon Macroeconomics, offered a more optimistic view, stating that the data shows “few signs of major disruption to activity from the war in Iran” and that May’s drop reflects a slowdown after April “when households tried to get ahead of the multiple rate hikes markets were pricing.” He added: “Underlying demand for housing looks solid, in our view.”
