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UK mortgage approvals fell more than expected and to the lowest level in two years in January, reflecting the lagged effect of uncertainty among prospective homebuyers around Rachel Reeves’ November Budget.
Net mortgage approvals for house purchases fell to 60,000 last month from 61,000 in December, the fourth consecutive monthly drop and the lowest figure since January 2024, according to data published by the Bank of England. Monday’s figure was below the 62,000 forecast by analysts.
Speculation about far-reaching property tax rises in the Budget circulated for months in the run-up to November 26, at the same time as some buyers would have been going through the typically lengthy process of purchasing a house.
The chancellor in the Budget announced a “mansion tax” surcharge on properties worth more than £2mn, most of which are in London and the south east, but it is not due to take effect until April 2028.
Simon Gammon, managing partner at broker Knight Frank Finance, said the fall in mortgage approvals last month reflected “the economic uncertainty that lingered after the November Budget and weighed on borrower confidence”.
However, other data, including house price indices, suggested that “activity recovered into February as borrowing costs eased”, he added.
Separate figures published on Monday by lender Nationwide showed house prices rose 0.3 per cent month on month in February, the same pace as in January and reversing a 0.3 per cent dip in December.
Compared with February 2025, house prices were up 1 per cent this month to an average of £273,176.
Robert Gardner, Nationwide’s chief economist, said the rise in prices reinforced “the view of a modest recovery after a dip at the end of 2025, most likely reflecting uncertainty around potential property tax changes ahead of the Budget”.
Gardner said housing market activity was “likely to recover” in the months ahead if wages continued to outpace inflation and mortgage rates continued to fall.
Monday’s data from the BoE showed the “effective” interest rate — the actual interest paid — on newly drawn mortgages dropped to 4.09 per cent in January from 4.15 per cent in December, the lowest in three years.
Reeves is not expected to make any big policy announcements in the Spring Statement on Tuesday, when she wants to present a stable fiscal picture to voters and investors, and is expected to emphasise how her decisions will help bring down inflation.
But some experts warned that inflationary shocks from the Middle East conflict could delay further interest rate cuts by the BoE — which voted last month to hold rates at 3.75 per cent — and hamper the recovery in the property market.
Alice Haine, personal finance analyst at investment platform Bestinvest by Evelyn Partners, said financial markets had been increasingly optimistic that the BoE would lower rates again “very soon”, thanks to easing inflation, rising unemployment and weak growth.
“But an increasingly fragile geopolitical backdrop could derail that expectation as any significant jump in wholesale energy costs could reignite inflationary pressures once again,” she added.