Mortgage approvals plummet to lowest level in two and a half years

Prospective mortgage borrowers seem to have showed caution amid market uncertainty, but could the outlook improve this summer?

Activity in the mortgage market slowed in May, which perhaps wasn’t too surprising as the conflict in the Middle East created a lot of uncertainty and prompted lenders to hike rates.

Indeed, net mortgage borrowing in May dipped to £2.9 billion (compared to £4.4 billion in the previous month), the latest Money and Credit data from the Bank of England revealed. This was significantly lower than the average sum borrowed over the previous six months, calculated to be at £5.1 billion.

Meanwhile, the data also showed that net mortgage approvals for house purchases, which indicates future borrowing, fell from 66,000 in April to 56,200 in May, its lowest level since December 2023.

“The slowdown in mortgage approvals across house purchases and remortgaging during May is a somewhat natural cooldown considering recent unrest in the mortgage market,” Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, explained.

How did events in the Middle East affect the UK mortgage market?

After US-Israeli forces attacked Iran at the end of February, shockwaves were felt across the world, including the UK. The conflict pushed up oil and gas prices, which in turn was expected to cause higher inflation and put pressure on UK consumers and businesses.

As a result, there were predictions that the Bank of England would raise the base rate (which influences the cost of borrowing) in 2026 to try to curb these inflationary pressures. Due to these factors and the overall global uncertainty, mortgage lenders hiked rates in the weeks following the outbreak of conflict.

Mortgage rates peaked at the start of April, with the average two-year and five-year fixed rates reaching 5.90% and 5.78%, respectively. Although rates started to edge lower throughout May, the continued uncertainty over how global events would unfold and how they would affect the UK may have led some prospective buyers to put their purchasing plans on hold.

Will the mortgage market “build up momentum”?

After a turbulent few months, the picture may be starting to improve for mortgage borrowers as many lenders have cut rates, with the average two- and five-year fixed rates falling to 5.54% on 29 June.

This is partly because inflation has (so far) not accelerated significantly, which means the Bank of England may not need to increase the base rate as much as previously feared.

The more positive outlook is further supported by the peace talks between the US and Iran, with a Memorandum of Understanding signed on 17 June 2026. Although there have been events that have threatened to destabilise the peace arrangements in the Middle East, borrowers may feel tentatively optimistic about the coming months.

“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,” Springall explained.

However, the situation in the Middle East remains relatively volatile and could quickly change, so anyone planning to take out a mortgage in the near future should keep a close eye on developments in the UK and overseas.

Furthermore, while mortgage rates have started to decline, they are still higher than they were before the conflict broke out. This could add some financial pressure to those looking to buy a new home, as well as those who are coming to the end of a fixed term and want to remortgage to a new deal.

Comparing mortgage rates from different lenders could help borrowers find the most cost-effective deal for their situation. However, many may also find it beneficial to speak to a mortgage broker as they will be able to offer tailored advice and guidance for each individual’s situation.

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