UK Mortgage Demand Hits 32-Month Low as Iran War Raises Costs 2026

UK mortgage demand has plummeted to a 32-month low as the ongoing war in Iran drives up borrowing costs, according to fresh data from the Bank of England. The sharp decline highlights how geopolitical tensions are directly affecting household finances and the broader housing market.

In August, just 54,918 mortgages for new home purchases were approved, the lowest monthly total since December 2023. This seasonally adjusted figure represents a significant drop from previous months, underscoring the impact of rising mortgage rates since the conflict began in late February.

Rising Borrowing Costs Deter Buyers

The war in Iran has pushed up oil prices, which in turn has fueled inflation and dashed hopes of interest rate cuts. As a result, the effective interest rate on newly drawn mortgages climbed to 4.60% in August, up from 4.45% in July. This increase has made homeownership less affordable for many potential buyers.

Simon Gammon, managing partner at Knight Frank Finance, noted: "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."

Remortgaging Activity Also Slows

The slowdown isn't limited to new purchases. Approvals for remortgaging dipped to about 34,000 in August from 34,600 in July. This suggests that refinancing demand is also softening as homeowners grapple with higher rates.

Analysts warn that these rising borrowing costs are taking a toll on the housing sector. Katie Clinton, head of financial services advisory at KPMG UK, commented: "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."

Key Takeaways for Homebuyers

• Mortgage approvals for new purchases fell to 54,918 in August, the lowest since December 2023.
• The effective interest rate on new mortgages rose to 4.60%, up from 4.45% in July.
• Remortgaging approvals decreased slightly to 34,000.
• Rising oil prices due to the Iran war are driving up inflation and borrowing costs.

Comparing Mortgage Trends

To better understand the current landscape, here's a comparison of key mortgage metrics over recent months:

Note: July new purchase approvals are estimated based on the 15% year-over-year decline reported for August.

What This Means for the Housing Market

The drop in mortgage demand signals that affordability pressures are intensifying. With the Iran war showing no signs of resolution, oil prices could remain elevated, keeping inflation and mortgage rates high. This environment may continue to cool housing market activity, especially as the traditionally busy autumn season approaches.

For prospective buyers, it's crucial to factor in these higher costs when budgeting for a home. Sellers may need to adjust expectations as demand wanes. Meanwhile, homeowners looking to remortgage should act quickly to lock in rates before further increases.

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