Mortgage approvals in the United Kingdom experienced a significant decline in May, falling to their lowest level since late 2023, according to recent data from the Bank of England. Net approvals dropped by 14.9 percent to 56,205 from 66,034 in April, driven in part by homebuyers accelerating purchases ahead of anticipated interest rate increases linked to geopolitical tensions following the conflict in Iran.

The Bank’s money and credit report highlighted a notable fall in remortgage approvals as well, which decreased to 33,300 in May from 51,200 the previous month. Analysts have cautioned that this sharp reversal could signal broader challenges in the housing market, potentially affecting sales completions during late summer and early autumn.

Rising inflation has contributed to upward pressure on mortgage rates, constraining demand among prospective homebuyers. In May, the effective interest rate—the actual cost paid on new mortgages—rose slightly to 4.2 percent from 4.1 percent in April. However, some easing in mortgage costs has emerged recently as peace negotiations have prompted certain lenders to reduce their rates. The average two-year fixed mortgage rate has retreated from its peak levels seen in April.

Anthony Codling, managing director for equity research at RBC Capital Markets, described the slowdown as a “warning shot” for the housing market after a robust first quarter when monthly approvals averaged over 63,000. He noted that future mortgage rate trends will be a key factor, adding that any further rate increases could further limit buyer affordability. Housebuilders will closely monitor upcoming data to determine whether May’s figures represent a short-term fluctuation or the beginning of a more sustained downturn.

The impact was reflected in the stock market, where shares of major housebuilders declined. Persimmon’s shares fell 2.5 percent, Barratt Redrow dropped 2.2 percent, and Vistry Group slid 4.2 percent.

Despite the recent decline in approvals, some economists remain cautiously optimistic. Rob Wood, chief UK economist at Pantheon Macroeconomics, noted that, when viewed over a three-month average, mortgage approvals remained “solid,” with 62,100 recorded in May compared to 62,400 in the preceding three months. Wood also pointed to market expectations of fewer interest rate increases by the Bank of England’s Monetary Policy Committee as a potential positive influence on housing market activity into June.