UK mortgage demand drops to 32-month low as Iran war drives up borrowing costs

Demand for UK mortgages slumped to a 32-month low in August as buyers were deterred by rising costs linked to the war in Iran.Just 54,918 mortgages for new home purchases were approved in August, the England" class="entity-link entity-organization" data-entity-id="2477" data-entity-type="organization">Bank of England reported on Tuesday, the lowest monthly total since December 2023.The data, which is seasonally adjusted, shows the impact of the rise in UK mortgage rates since outbreak of the war in Iran in late February began pushing up the price of oil, and sinking hopes of interest rate cuts.Simon Gammon, managing partner at Knight Frank Finance, said: “Buying activity weakened through the summer as rising energy prices pushed up Borrowing Costs. Lending to homebuyers fell 15% in August compared to the same month a year earlier.”Approvals for remortgaging dipped to about 34,000 in August, from 34,600 in July.The Bank found that the “effective” interest rate on newly drawn mortgages increased to 4.60% in August, from 4.45% in July. Analysts warned that these rising Borrowing Costs were taking a toll on activity in the housing sector.“A further fall in mortgage approvals in August points to affordability pressures continuing to weigh on housing demand, as the shocks from the Iran conflict push up both inflation and mortgage rates,” said Katie Clinton, the head of financial services advisory at KPMG UK.“Meanwhile, the drop in remortgaging suggests refinancing demand softened, despite many borrowers reaching the end of existing fixed term rates.”Moneyfacts, the financial product data company, reported that the average five-year fixed mortgage rate hit its highest level since October 2023, at 5.94%, on Tuesday.skip past newsletter promotionafter newsletter promotionTwo-year fixed mortgages are the most expensive since July 2024, at 5.93%, according to Moneyfacts.Paul Dales, the chief UK economist at Capital Economics, warned that prospect of mortgage rates staying above 4.5% for most of 2027 would have a larger influence on activity than the government’s new “Your First Home” scheme for first-time buyers, announced earlier this week.