Mortgage Lending Increases Despite Higher Borrowing Costs

The Bank of England’s latest Money and Credit report has revealed that net borrowing of mortgage debt by individuals increased to £7.7 billion in June 2026, up from £3.3 billion in May. This figure is significantly higher than the previous 6-month average of £4.9 billion. 

This increase in mortgage lending is despite rising mortgage interest rates with lenders applying caution amidst the uncertainty caused by conflict in the Middle East.  

The average two-year fixed residential mortgage is 5.62%, according to recent data shared by Moneyfacts. The Bank of England held the base rate at 3.75% during the review on 30 July for the fifth consecutive time.  

In their base rate review announcement, the Bank of England shared that inflation had fallen slightly more than they had anticipated but the ongoing energy cost volatility driven by the situation in the Middle East is making it difficult to predict what will happen next. 

Increase in Mortgage Approvals  

The number of net mortgage approvals increased from 56,600 in May to 58,200 in June, with some experts suggesting that this could be a sign of a stabilising economy. 

Chief executive of Propertymark, Nathan Emerson shared:  

“The increase in net mortgage approvals for house purchases in June suggests that buyers responded positively to a period of relative economic stability. However, approvals remained below the average recorded over the previous six months, indicating that while confidence may be improving, activity has yet to fully recover.” 

UK House Price Growth Slowed in July 

In June, UK house price growth sat at 2.2%, as reported in the Nationwide House Price Index but this slowed down to 1.8% in July. The average UK house price in July was £277,542, with the softening of house prices reflecting the effects of geopolitical tensions. 

Central vs Outer London House Prices 

ONS data shows that across the whole of London, house prices fell by 3.7% between May 2025 and 2026. However, some areas outside of central London have seen an increase in average house prices. Waltham Forest’s average house prices grew 3.1% over this period, while Havering (2.8%) and Redbridge (2.4%) also saw positive growth figures. 

There is a contrasting picture in central London; some prime central areas have recorded double-digit value drops, with Westminster average house prices falling by 22.8% in the year to May 2026. Prices in Kensington and Chelsea fell 10.7% during the same period. These central London price drops are largely being attributed to the upcoming mansion tax.  

The UK’s housing market has become increasingly difficult to predict, particularly due to the Iran war and the appointment of the new Prime Minister, Andy Burnham.