UK Mortgage Approvals Drop to 18 Month Low

Mortgage approvals for house purchases in the UK fell sharply in December, reaching their lowest level since mid 2024 and raising fresh doubts about an early recovery in the housing market this year. Data released by the Bank of England showed lenders approved just over 61,000 mortgages during the month, a figure well below expectations and a clear slowdown compared with previous months. Analysts said the weaker reading reflected growing caution among buyers toward the end of 2025, as households weighed higher borrowing costs against economic uncertainty. The decline came despite hopes that easing inflation and a more stable interest rate outlook would support housing activity. For many potential buyers, affordability pressures remained a key concern, particularly in London and the South East where prices continue to outpace wage growth.

The slowdown followed a year of uneven performance in the housing market, which lost momentum after the expiry of a temporary tax break on some property purchases. Confidence was further dented in the weeks leading up to the autumn budget, as buyers delayed decisions amid concerns about possible tax changes on higher value homes. Property professionals said activity remained subdued through the final weeks of the year, even though several budget measures were seen as supportive overall. Major lenders reported only modest annual house price growth by December, with increases remaining well below the rate of inflation. This suggested that, while prices have stabilised, the market has yet to regain strong upward momentum heading into 2026.

Survey evidence offered some tentative signs of improvement in sentiment toward the end of the year, with expectations for future sales showing gradual improvement. However, economists warned that mortgage approvals typically precede completed transactions by several weeks, meaning the December weakness could translate into lower sales volumes early this year. Some lenders reported increased buyer interest in January, but said this had not yet translated into a clear rise in completed deals. Analysts said the housing market was likely to remain sensitive to shifts in interest rate expectations and household confidence, particularly as many borrowers continue to face higher refinancing costs compared with previous years.

Alongside the slowdown in mortgage approvals, Bank of England figures showed consumer borrowing growth remained elevated on an annual basis, although monthly lending rose by less than expected. This suggested households were still relying on credit to support spending, even as borrowing for property purchases softened. Retail sales data for December showed stronger than anticipated growth, offering some optimism for the wider economy after a sluggish end to 2025. Economists said this mix of resilient consumer spending and weak housing activity pointed to an uneven recovery, with the property market likely to lag broader economic growth in the early part of the year.