UK mortgage approvals sink to 56,205 in May, lowest since Dec 2023

British mortgage lenders approved 56,205 mortgages for house purchase in May, the fewest since December 2023 and well below both April's 66,034 and the 62,900 median forecast in a Reuters poll of economists, Bank of England data showed on Monday.

The sharp drop extends a cooling trend that began in March, when approvals slipped from a seven-month high. The latest reading undershot every forecast in the Reuters survey, with the highest call at 60,000.

Net mortgage lending edged up £1.2 billion in May, down from £1.5 billion in April. Lending for remortgaging also softened, reflecting fewer homeowners rolling off fixed-rate deals.

The approvals data is the first hard snapshot of housing demand after the general election was called in late May. Estate agents and surveyors had already flagged a pullback in buyer inquiries during the campaign period.

London-listed housebuilders such as Persimmon and Barratt Developments edged lower on the session. The FTSE 350 home construction index fell 1.2%. Mortgage lenders Nationwide and Lloyds Banking Group also slipped.

For the forex market, the data reinforces a narrative of a slowing UK economy that could give the Bank of England room to cut rates sooner rather than later. Sterling slipped 0.3% against the dollar after the release, touching a session low near 1.2620. The GBP/USD profile already showed the pair trading below its 50-day moving average before the print.

Traders trimmed bets on a rate hold through August. Money markets now price a roughly 40% chance of a quarter-point cut at the BoE's August meeting, up from 30% before the data. A cut would bring the base rate to 5.0% from 5.25%.

The housing market's sensitivity to borrowing costs is acute. The average two-year fixed mortgage rate remains above 5.7%, according to Moneyfacts, despite a modest decline since the start of the year. That is squeezing affordability for first-time buyers and limiting transaction volumes.

The BoE's credit conditions survey, published earlier this month, showed lenders expect demand for mortgages to fall further in the third quarter. The approvals data is consistent with that outlook.

The next key data point is the June reading, due in late July. That print will capture activity after the election, when political uncertainty recedes. Whether it marks a floor or another leg lower depends on how quickly mortgage rates follow any BoE rate cut.

The May approvals number is the weakest since December 2023, when approvals hit 51,500. The recovery from that trough lasted through early 2024 before stalling. The current trajectory suggests the housing market remains in a holding pattern, waiting for a clearer signal on rates.