The recent slowdown in home mortgage approvals suggests that activity in the UK housing market softened during May, with higher borrowing costs and ongoing global uncertainty weighing on buyer confidence. While the market had shown resilience earlier in the year, the latest figures indicate that many prospective buyers chose to delay their purchasing decisions.
According to the latest Money and Credit report from the Bank of England, around 56,200 mortgages for house purchases were approved during May. This represents a noticeable decline from the 66,000 approvals recorded in April and is also below the six-month average of 63,300 approvals. It is the weakest monthly figure since December 2023, highlighting a significant cooling in mortgage activity.
Mortgage approvals are widely viewed as an early indicator of future housing transactions because they reflect borrowing decisions made before property purchases are completed. As a result, the latest figures suggest that housing market activity may remain subdued in the coming months unless market conditions improve.
Remortgaging activity also experienced a sharp decline. Approvals for homeowners switching to a different lender fell from 51,200 in April to just 33,300 in May. This suggests that many borrowers also delayed refinancing decisions while monitoring interest rate movements and wider economic developments.
One of the main reasons behind the fall in approvals has been the rise in mortgage rates following increased geopolitical tensions in the Middle East. The conflict involving the United States, Israel and Iran created uncertainty across global financial markets, pushing up funding costs for lenders and causing many mortgage products to become more expensive.
During this period of uncertainty, several lenders withdrew mortgage products from the market while repricing their fixed-rate deals. As a result, average mortgage rates edged higher, making borrowing more costly for both first-time buyers and existing homeowners looking to move.
The effective interest rate on newly issued mortgages rose to 4.22% in May, adding further pressure to household affordability. Higher monthly repayments have made it more challenging for buyers to secure suitable finance, particularly those already facing rising living costs.
Jason Tebb, president of OnTheMarket, said the decline in mortgage approvals reflects the combined impact of political uncertainty and higher borrowing costs. He noted that both buyers and sellers have become more cautious while waiting for greater stability in the economy.
He also pointed out that ongoing conflict in the Middle East has contributed to higher inflation and increased energy prices, making it more difficult for central banks to reduce borrowing costs quickly. As a result, mortgage rates have remained elevated for longer than many buyers had hoped.
However, not all commentators believe the housing market is losing momentum permanently. Lucian Cook, Head of Residential Research at Savills, described the latest figures as more of a correction after several unexpectedly strong months rather than the beginning of a prolonged downturn.
He explained that previous approval numbers had remained surprisingly resilient despite other indicators pointing towards weaker housing market conditions. In his view, May’s figures simply bring mortgage activity more in line with the broader market picture.
There are also signs that conditions may begin improving again. Competition among lenders has increased in recent weeks, leading many banks and building societies to reduce mortgage rates as wholesale funding costs, particularly swap rates, have eased.
Rachel Springall, finance expert at Moneyfacts, believes the recent reductions in mortgage rates are encouraging. Although borrowing remains relatively expensive, she expects continued lender competition to gradually improve affordability if market stability continues.
Rob Wood, Chief UK Economist at Pantheon Macroeconomics, also suggested that the latest figures should not be interpreted as evidence of a major collapse in housing demand. Instead, he believes May’s slowdown follows a particularly busy April, when many borrowers acted quickly before markets anticipated further interest rate increases.
According to Wood, the underlying appetite for housing remains relatively healthy despite the monthly decline in approvals. This suggests that demand has not disappeared but has temporarily eased as buyers assess changing market conditions.
Alongside the mortgage figures, the Bank of England also reported that consumer borrowing remained broadly stable during May. Net consumer credit lending held at approximately £1.7 billion, showing little change from the previous month.
Credit card borrowing, however, fell modestly from £800 million in April to £600 million in May, indicating that households may be becoming slightly more cautious with discretionary spending amid continued economic uncertainty.
Household savings continued to grow during the month, with deposits held at banks and building societies increasing by £5.4 billion. A significant portion of this growth came from an additional £3.1 billion being placed into Individual Savings Accounts (ISAs).
Although savings increased, ISA deposits were considerably lower than the £12 billion recorded in April, when many savers typically take advantage of the start of the new tax year. This seasonal slowdown is not unusual but highlights changing household financial behaviour.
Overall, the latest mortgage approval figures point to a cooling housing market driven largely by higher borrowing costs and wider economic uncertainty. Nevertheless, falling swap rates and renewed competition among lenders may help improve mortgage affordability in the months ahead, providing cautious optimism for buyers if financial conditions continue to stabilise.
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