Gilt yields just hit levels unseen since before the 2008 crisis
Mortgage approvals have moved through the most volatile year for lending since the 2022 mini-Budget, and July's total shows the volatility has not settled.
Bank of England figures show approvals for house purchases fell to 56,053 in July 2026, down 3.7% on the month and 14.9% lower than a year earlier, continuing a pattern of sharp swings that has defined 2026.
Approvals opened the year at 60,000 in January before climbing to 65,900 in April, the strongest reading since before the October 2022 mini-Budget.
That momentum reversed sharply: approvals fell to 56,200 in May, the weakest reading in 17 months, before settling close to that level again in July. Remortgage approvals followed a similar pattern, dropping from 51,200 in April to 33,300 in May.
Funding costs turn volatile again
The driver, brokers say, is wholesale funding rather than the Bank Rate itself. Mark Harris, chief executive of mortgage broker SPF Private Clients, said: "With tensions in the Middle East simmering once more and the price of oil moving higher, Swap rates - which underpin mortgage pricing - jumped, before coming back down a little."
"Until we have a confirmed end to the conflict we expect this pattern of volatility to continue – borrowers need to be aware and take steps to secure rates well ahead of their current deals expiring," he added.
The figures bear that out. Average two- and five-year fixed rates rose for the first time since April in July, to 5.63% and 5.66% respectively, while the average shelf-life of a mortgage deal fell to 11 days as lenders repriced on the fly.
A subsequent sell-off in government bonds has pushed two-year gilt yields past 4.5% and ten-year yields above 5.25%, their highest level since August 2007.
Traders are now pricing in the possibility of Bank Rate rises rather than cuts before the Monetary Policy Committee's next vote on September 17; the Bank has held its rate at 3.75% since a 6-3 vote at the end of July.
Lenders reprice on both sides of the ledger
That backdrop has produced uneven pricing decisions across the market. UK Finance's 2026 Mortgage Market Forecast had projected around 1.8 million fixed-rate deals expiring this year, a volume that made March's swap rate spike, triggered by the Iran conflict, disruptive for both lenders and borrowers coming to the end of their terms.
Nationwide moved first, cutting rates by up to 0.19 percentage points across its two-, three- and five-year fixed ranges from 4 August.
Other lenders followed over the next fortnight: Accord Mortgages cut rates by up to 18 basis points, Atom bank reduced its Prime range by 20 basis points, and NatWest lowered pricing across more than 200 products by up to 24 basis points in the week ending August 14.
Stonebridge's analysis of Q2 lending tied the approvals decline directly to swap rates rising even as the Bank Rate held steady, recording a 10.8% annual fall in May approvals alongside a 1.8% drop in average loan size, to £209,932.
Regulation adds another variable
The volatility in pricing comes alongside a live regulatory review. The FCA's consultation on reforming mortgage affordability rules for first-time buyers, published as CP26/18, closed on July 28, with a policy statement due in the second half of 2026.
That follows an earlier clarification of stress test flexibility in March 2025, which 85% of the market has since adopted, offering many borrowers around £30,000 more in affordability headroom than under the previous approach.
Arrears tell a steadier story
Despite the swings in approvals, borrower distress has not followed. UK Finance's second-quarter data shows homeowner mortgages in arrears fell 1% quarter-on-quarter to 77,940, while possessions fell to 1,150, down 14% year-on-year and the first annual decline in that measure since late 2023.
James Tatch, head of analytics at UK Finance, said the figures point to falling arrears across both residential and buy-to-let lending, with possessions remaining well below long-term averages.
House prices follow the same subdued pattern
Against that lending backdrop, the Lloyds House Price Index recorded a 0.4% annual fall in August 2026, the first year-on-year decrease since November 2023, with the average price at £298,468, down from £299,153 in July.
Prices fell 0.2% on the month, following a 0.1% July decrease, with the quarterly change at -0.1%. HMRC data shows UK residential transactions fell 1.7% to 96,710 in July on a seasonally adjusted basis, and RICS' July survey recorded buyer enquiries unchanged at -28% and agreed sales unchanged at -30%.
"UK house prices fell slightly in August, down -0.2% over the month following a similar decline in July. The average property now costs £298,468, marking the first annual fall in house prices since November 2023. Despite that, prices are still marginally up (+0.2%) since the start of the year," said Andrew Asaam, mortgages director at Lloyds.
Asaam pointed to few sellers cutting asking prices and some buyers waiting to see how conditions develop.
A regional divide persists
Northern Ireland recorded the strongest annual growth, at 6.9% to £231,245, while Scotland rose 3.5% to £223,437 and Wales 0.6% to £230,282.
The North East and North West rose 2.7% and 2.0% to £184,370 and £248,675.
The South East fell 1.6% to £381,729, Greater London fell 1.5% to £534,177, and the South West and Eastern England both fell 1.2% to £298,807 and £331,410.
The East Midlands fell 0.2% to £244,959, the West Midlands held flat at £260,286, and Yorkshire and Humber fell 0.3% to £217,085.
Jeremy Leaf, a north London estate agent and former RICS residential chairman, described a "stand-off" between buyers concerned about mortgage costs and sellers who feel they have already reduced prices as far as they can.
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, said August delivered "some strong sales" in a "quietly confident month," and expects fewer new listings in September ahead of the Budget.
Charlotte Harrison, chief executive of Homes at Skipton Building Society, said the annual price fall "masks very different realities depending on where people live and their stage of life," with housing costs above 45% of household income for many first-time buyers and average deposits at 140% of household income in London, double the level in the North.
That pressure is part of the case the FCA's affordability consultation is designed to address, with a policy statement due in the second half of 2026.
