Mortgage demand in the UK slumped to a 32-month low in August as rising borrowing costs linked to the war in Iran deterred buyers, according to industry figures.
The Bank of England reported that just 54,918 mortgages for new home purchases were approved in August, the lowest monthly total since December 2023. Meanwhile Moneyfacts said the average five-year fixed mortgage rate climbed to 5.94%, its highest level since October 2023.
Market participants said the escalation of conflict in and around Iran prompted moves in global financial markets that pushed up swap rates and government bond yields. Those higher wholesale funding costs have been passed on by lenders into mortgage pricing, making fixed-rate deals more expensive for borrowers.
The combination of higher rates and weaker demand is likely to cool activity in the housing market in the near term, weighing on prospective homebuyers who face both greater monthly costs and reduced incentives to transact. Lenders and policymakers will be closely watching whether the trend in approvals and borrowing costs continues as geopolitical developments evolve.
Housing market analysts have previously noted that mortgage approvals are a leading indicator of transaction volumes, so a sustained drop could feed through to lower house sales and longer-term market softness. For now, borrowers considering a move or remortgage face a backdrop of elevated rates and heightened market uncertainty tied to international events.