📌 THIS WEEK IN BRIEF:

Three separate data points landed this week, and together they describe a market that is improving on rates but weakening on activity, with the most important institutional publication of the year still to come.

The mortgage approvals drop is the most important number this week

Bank of England data published this week confirmed that mortgage approvals for house purchases fell to 56,205 in May 2026. That is down 11% on May 2025 and down 15% on April 2026's reading of 66,034, the strongest month since January 2025. One month does not make a trend, and May can be distorted by Bank Holiday timing and seasonal factors. But the direction matters. Approvals are a leading indicator of completions roughly eight to twelve weeks out, which means the May reading is telling you something about transaction volumes in August and September. The market entered summer with a weakening pipeline.

What explains the drop? Mortgage rates peaked at 5.90% for the average 2-year fix on 8 April and remained above 5.80% through most of May. Buyers who were approved in April, when rates were already elevated, pulled back further in May as affordability calculations deteriorated. The fall also aligns with Halifax and Nationwide data from the same period showing the second consecutive monthly house price decline in May.

The approvals number stands in sharp contrast to the April reading of 66,034, which had been the most cited positive indicator in the market through May and June. That contrast is now starker than it looked a fortnight ago.

The oil picture grew more complicated on Tuesday

Brent crude fell to $72.25 on 1 July, down 0.96% on the day and posting its steepest quarterly decline since 2020 as supply fears eased on tanker traffic resumption through the Strait of Hormuz. But the diplomatic picture deteriorated at the same time. Iran ruled out direct talks with US envoys in Doha, opting instead for indirect discussions through mediators, casting fresh doubt over the durability of the interim ceasefire. The 60-day window under which Iran agreed not to impose transit fees on Strait of Hormuz shipping remains in place, but analysts have warned of renewed clashes that left two vessels damaged over the weekend, and Iran has made clear it intends to continue overseeing maritime traffic through the waterway regardless of whether Oman participates in a co-regulation framework.

For the UK mortgage market, oil remains the dominant variable. Gilt yields fell to 4.71% on 1 July, near two-month lows, and were on track for a 9 basis point monthly decline as investors assessed the impact of the interim US-Iran peace deal and shifting interest rate expectations. But the gap between what the gilt market is pricing and what the geopolitical situation actually looks like is narrowing. If the indirect talks collapse or another incident disrupts Hormuz traffic, the disinflationary impulse that has been pushing gilt yields and swap rates lower would reverse quickly.

Andy Burnham and fiscal discipline

Andy Burnham, the sole candidate to succeed Keir Starmer, pledged on Monday to significantly devolve fiscal powers from Westminster to local authorities if elected, while upholding fiscal discipline. Markets responded positively: the 10-year gilt yield's monthly decline of 9 basis points reflects, in part, confidence that a Burnham premiership will not trigger a significant increase in gilt issuance. The identity of the next Chancellor is still the bigger unknown for the bond market. Investors weighed the odds of Ed Miliband becoming Chancellor over Wes Streeting, with fiscal concerns easing. The Labour leadership nominations open on 9 July and close on 16 July. Burnham is expected to be confirmed shortly after, with a Downing Street transition expected by mid to late July.

The Bank of England publishes its July 2026 Financial Stability Report on Tuesday 7 July at 10:30am. The press conference will now start at 11:30am at Bloomberg's London offices, 30 minutes later than the normal published time, due to replacement of the Bank's technology and AV systems. We will cover the full findings in Edition 18.

Why does this matter more than a rate decision? Because it will contain the first published output from the private markets System Wide Exploratory Scenario, the stress test the Bank launched in December 2025 and began sending to the 46 participating firms in June. The Bank will share findings from its initial information gathering in the July Financial Stability Report, with interim findings from Round 1 to be shared later in 2026 and the final report in 2027.

Here is what those findings will be trying to answer. The private markets ecosystem, which includes private credit, private equity, infrastructure funds, insurers and pension funds, has grown to a size where it is now deeply interconnected with the UK banking system. UK banks are estimated to hold £173 billion of banking book exposure to private market funds and to highly leveraged corporates backed by finance sponsors, equivalent to 8% of their total committed wholesale limits across wholesale portfolios. The question the SWES is designed to answer is whether, under a severe stress, the collective behaviour of those 46 firms would amplify a crisis rather than absorb it.

Why this connects directly to the housing market

We have tracked this thread since Edition 1. Non-bank lenders now hold around 45% of UK development finance market share. The Market Financial Solutions collapse earlier this year, which exposed a £930 million collateral shortfall on approximately £2 billion of creditor exposure, was the clearest UK example yet of what happens when private credit stress crystallises in the property sector. If the FSR's initial findings from the SWES suggest material systemic risk in private credit, the implications for development finance, housing supply and ultimately house prices are direct. We will report on Tuesday's publication in full in Edition 18.

The wider economy

Growth remains fragile. The June flash composite PMI was 49.4, a 14-month low, with services at 48.7, a 41-month low. Manufacturing hit a 21-month high at 53.6, but S&P Global flagged that the boost looks temporary as new order growth slows. GDP grew 0.6% in Q1 2026 but contracted 0.1% in April. CPI held at 2.8% in May, but services inflation at 3.7% is the detail the Bank is watching. The Ofgem energy price cap rise in July will add to upward inflation pressure in Q3. The unemployment rate stands at 5.0%, up from 4.4% a year ago, with payrolled employee numbers falling since mid-2024.

Savills revised its full-year house price forecast to a 2% fall in 2026 as of June, down from its earlier forecast of 2% growth. Pantheon Macroeconomics similarly revised to 1% growth from 3% earlier. Knight Frank flagged continued "downward pressure" despite a 1.5% growth forecast. These are forecast revisions, not outcomes, but they reflect a consistent direction among the major analysts.

What is happening: Gilt yields fell to 4.71% on 1 July, near two-month lows, with the 10-year yield on track for a 9 basis point monthly decline driven by falling oil prices and easing political risk as Andy Burnham emerged as the unchallenged Labour leadership candidate. Brent crude fell to $72.25 on 1 July, its lowest since before the conflict began, though the diplomatic setback of Iran rejecting direct talks in Doha introduces fresh uncertainty into how durable this oil price decline will prove.

Why it matters for mortgages: Average fixed rates have barely moved week on week — the 2-year fix is at 5.55% versus 5.54% last edition, and the 5-year fix is at 5.54% versus 5.56% last edition, both drawn from Moneyfacts data dated 29 June 2026. The direction of travel remains lower, and Yorkshire Building Society made its second mortgage rate cut in a week on 25 June, and Nationwide made its third round of cuts in a month on 26 June. However, the pace of lender cuts has slowed, reflecting caution around the uncertain geopolitical picture. The gap between where gilt yields are and where fixed-rate pricing has moved to is wider than it was six months ago. Lenders are not fully passing on the improvement.

What to watch: Tuesday's FSR, the oil price trajectory through July, and the next BoE decision on 30 July, which carries a new Monetary Policy Report. The 30 July decision is the more consequential of the two summer meetings.

Data: Moneyfacts/HomeOwners Alliance, 29 June 2026

There are 7,150 residential mortgage deals available on the market, according to Moneyfacts, up from 6,784 at the start of May. Nearly one million five-year fixed deals taken out in 2021 at an average rate of 2.59% will expire in 2026, according to FCA data. The average 5-year fix in July 2021 was 2.60%. The average 5-year fix in July 2026 is 5.54%. On a £200,000 mortgage over 30 years, that means monthly payments of approximately £942 in 2021 versus approximately £1,118 today. Anyone on their lender's SVR of 7.13% is paying significantly more still.

The East Midlands has been one of the more consistent regional performers in the 2026 data, and the latest ONS and Land Registry figures confirm it with specifics. The average East Midlands house price reached £242,000 in April 2026, up from £229,000 a year earlier, an annual rise of 5.5%. That comfortably outpaces the England average of 3.9% and the UK average of 3.8% over the same period, placing the East Midlands among the stronger performing English regions in the April data, though still well behind the North East's 9.9%. The growth is supported by a combination of relative affordability compared to southern markets and steady employment conditions across its major cities: Leicester, Nottingham, Derby and Lincoln.

Zoopla's May 2026 data, which puts the UK average at £272,300, reflects the same pattern at a city level. East Midlands cities have consistently appeared in the upper half of Zoopla's regional ranking for sales activity and price growth, driven by strong first-time buyer demand at price points that remain materially below the national average for mortgage-financed properties.

What is driving it

The East Midlands occupies a structural advantage in the current rate environment. Average property values are low enough that even at a 5.55% average 2-year fix, monthly payments on a typical purchase remain within reach for dual-income households earning close to the regional median wage. That affordability floor has kept buyer activity relatively resilient compared to London and the South East, where the same rate applied to a much higher loan amount produces a far larger payment shock.

Rental demand in the region has also remained firm. ONS data shows the average East Midlands monthly private rent at £914 in May 2026, up from £881 a year earlier, a 3.7% annual rise that sits above the England average of 3.4%. In Nottingham specifically, average rents reached £1,007 in April 2026, up 3.8% annually, driven by supply constraints where planning permissions for new build have not kept pace with population growth and inbound student and graduate demand.

A note of caution

The East Midlands is more exposed than average to manufacturing employment, which is currently the one bright spot in the June PMI data. Manufacturing output rose to a 21-month high of 53.6 in June, but S&P Global flagged that new order growth is slowing to a six-month low, suggesting the manufacturing boost is temporary. If that sector weakens in Q3, the East Midlands labour market could feel it more than most regions.

Next edition spotlight: Yorkshire and The Humber.

The Bank of England Financial Stability Report publishes at 10:30am on Tuesday 7 July. For most mortgage holders, the immediate practical impact will be limited. But if you are in any of the following situations, here is what to do before Tuesday.

If you have a development loan or are financing a project through a non-bank lender: the FSR's initial findings on private credit could affect the cost and availability of that financing over the second half of 2026. Read the findings carefully, not just the headlines, and speak to your broker about what the findings imply for your refinancing position.

If you are watching mortgage rates and waiting for a further fall: gilt yields at 4.71% are now near their two-month low, and swap rates have eased. Lenders have been cutting rates. But the Iran diplomatic setback on Tuesday introduced new uncertainty into the oil price trajectory, and if Brent reverses toward $80, that improvement could partially unwind. The case for locking in a rate at today's levels rather than waiting for further cuts is stronger than it was a month ago.

If your fixed deal ends in the next six months: most lenders allow you to lock in a rate now and switch to a lower one if rates fall before completion, but not the reverse. The asymmetry still favours acting. Waiting for the FSR or the 30 July BoE decision to pass before locking in is a reasonable approach, but waiting longer than that carries increasing risk given the geopolitical uncertainty.

Send your questions to [email protected]

This week: "Mortgage rates have been falling. Why have house prices not gone up?"

Our answer: Because falling rates and rising prices do not move in lockstep, and the lag between the two can be substantial.

Mortgage rates peaked in April 2026 and have been easing since. But even at today's average of 5.55% on a 2-year fix, rates are still 72 basis points above where they were on 1 March, before the conflict began. The effect of the April and May rate spike has not fully worked its way through the market. Buyers who paused in those months are still cautious. Halifax showed a 0.1% monthly fall in both April and May. Nationwide showed a 0.6% monthly fall in May. Mortgage approvals fell 15% between April and May. These are not the readings of a market responding to rate cuts.

There is also a sequencing issue. House prices respond to completed transactions, which reflect mortgage approvals made roughly eight to twelve weeks earlier. The approvals made in April and May, when rates were at their worst, become completions in June and July. The price data we will read in July and August reflects decisions made at the peak of the market stress. Rate improvements since then will only begin to show in approval data from June, which will not appear in house price indices until autumn at the earliest.

The market is not ignoring the rate improvements. It is just that the improvements are recent, partial, and operating against a backdrop of weak consumer confidence, rising unemployment and a supply pipeline that has been building since early 2026.

Educational purposes only. Not financial advice. Always consult an FCA-regulated mortgage broker.

1. Mortgage Approvals Fall 15% Between April and May 2026 Bank of England data shows mortgage approvals for house purchases fell to 56,205 in May 2026, down 11% on May 2025 and down 15% on April 2026's reading of 66,034. The May reading is a leading indicator of completion volumes in August and September, suggesting the market entered summer with a weakening transaction pipeline. The fall aligns with May's consecutive monthly house price declines across both Halifax and Nationwide indices. Source: Bank of England, Mortgage Approvals Data, June 2026

2. BoE Financial Stability Report Publishes Tuesday 7 July with First Private Markets SWES Findings The Bank of England's July 2026 Financial Stability Report, which publishes at 10:30am on Tuesday 7 July, will contain the first published findings from the private markets System Wide Exploratory Scenario launched in December 2025. The exercise involves 46 firms including major alternative asset managers. UK banks hold an estimated £173 billion of banking book exposure to private market funds and highly leveraged sponsor-backed corporates. We will cover the findings in full in Edition 18. Source: Bank of England, bankofengland.co.uk/financial-stability-report/2026/july-2026

3. Brent Crude Falls to $72.25, Steepest Quarterly Decline Since 2020, as Iran Rejects Direct US Talks Brent crude fell to $72.25 on 1 July, posting its steepest quarterly decline since 2020, down nearly 40% from its conflict peak. Oil prices partially recovered after Iran ruled out direct talks with US envoys in Doha, choosing indirect mediation instead, reviving Middle East supply concerns. The 60-day interim agreement on Strait of Hormuz transit fees remains in place, but two vessels were damaged in renewed clashes over the weekend, and Iran has restated its intention to oversee traffic through the waterway. Source: Trading Economics, HDFCSky, Reuters, 1 July 2026

The BoE Financial Stability Report lands at 10:30am on Tuesday 7 July. Before it does, make sure you know exactly where your mortgage stands. Model your current payments against today's rates and understand what a rate movement of 0.25% in either direction would mean for your monthly budget.

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UK Property Pulse sends every Thursday at 7:30am. Subscribe: ukpropertypulse.co.uk/subscribe Contact: [email protected] UK Property Pulse is not authorised or regulated by the FCA. Nothing in this newsletter constitutes financial advice. Always consult a qualified, FCA-regulated mortgage broker before making mortgage decisions.

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