UK Housing Market Slows Notably in January as Mortgage Approvals Hit Two-Year Low, BoE Data Shows
March 3, 2026: The number of mortgages approved by British lenders for house purchase unexpectedly fell in January to their lowest in two years, according to data from the Bank of England on Monday that also showed consumer credit grew at a faster pace .
Mortgage approvals fell to 59,999 in January from 61,007 in December, the lowest since January 2024, and confounding the median forecast in a Reuters poll of economists for a rise to 62,000 . Approvals for remortgaging, which only capture remortgaging with a different lender, also decreased to around 38,100 in January, from 38,400 in December .
The value of mortgage lending, which lags behind approvals, rose by the smallest amount since May 2025—up £4.076 billion in net terms in January following a rise of nearly £4.5 billion in December . Net borrowing of mortgage debt by individuals decreased to £4.1 billion in January, from £4.5 billion in December, below the previous 6-month average of £4.5 billion .
House Prices Defy Expectations
Separate figures from mortgage lender Nationwide, published on Monday, showed house prices rose more than expected last month after a blip at the end of 2025 linked to uncertainty over finance minister Rachel Reeves' budget . The average UK house price increased by 0.3% month-on-month in January, with values rising by 1.0% annually. The typical house price in February was £273,176, according to Nationwide's report .
Lucian Cook, head of residential research at Savills, noted: "With nominal house price growth running at just 1.0%, prices are still falling on an inflation adjusted basis. This is contributing to a gradual improvement in affordability, particularly across London and the south. However, against the current economic backdrop, many prospective buyers remain cautious about taking advantage of that improved position" .
Consumer Credit Growth
The BoE data showed net consumer borrowing rose by £1.8 billion in January, above the £1.7 billion forecast in the Reuters poll of economists . Within this total, net borrowing through credit cards was £0.9 billion in January, up from £0.8 billion in December, while borrowing through other forms of consumer credit (such as car dealership finance and personal loans) remained unchanged at £0.9 billion . The annual growth rate for consumer credit remained unchanged at 8.3% in January, with credit card borrowing growth slowing slightly to 12.3% from 12.4% .
"The pickup in consumer credit adds to other evidence that suggest economic activity strengthened in January," said Ruth Gregory, deputy chief UK economist at Capital Economics .
Interest Rates and Affordability
The 'effective' interest rate—the actual interest paid—on newly drawn mortgages decreased to 4.09% in January from 4.15% in December. The rate on the outstanding stock of mortgages was 3.90% in January, down from 3.92% in December .
Jason Tebb, president of OnTheMarket, said: "Last year's rate reductions had a positive impact on activity, and further cuts this year should boost activity and transactions" . Simon Gammon, managing partner at Knight Frank Finance, cautioned: "The outlook for activity and rates appeared relatively benign only last week, but conflict in the Middle East has introduced fresh uncertainty. Any spike in oil prices could fuel global inflation or, at the very least, prompt central banks, including the Bank of England, to delay further rate cuts until the outlook becomes clearer" .
Market Reaction and Outlook
Jeremy Leaf, a north London estate agent, observed: "Clearly buyers are still nervous despite expectations that inflation and mortgage rates will continue along a downwards path. On the ground the amount of choice, particularly of flats, is encouraging more first-time buyers to transact" .
Richard Donnell, executive director at Zoopla, said the latest mortgage approvals data align closely to the overall trends in the housing market with a sustained recovery in sales since 2023 now starting to plateau . Rob Wood, chief UK economist at Pantheon Macroeconomics, expressed confidence that "housing transactions will pick up now," noting that approvals are likely reflecting poor sentiment around the budget with a lag .
The Bank of England last month downgraded its forecast for economic growth this year to 0.9% from 1.2% in November, and expects inflation to drop back to close its 2% target in April . The BoE held interest rates at 3.75% in February, and investors are betting that the central bank will reduce borrowing costs in one or two further quarter-point moves to 3.25% by the end of the year .
However, Gregory warned of downside risks: "The growing risk is that an inflationary shock from the event in the Middle East limits interest rate cuts and puts a handbrake on growth this year" .