LONDON, Oct 29 - British lenders approved the lowest number of mortgages since December 2023 last month as rising borrowing costs sapped demand, although unsecured lending to households rose at its sharpest annual pace since 2018.

Mortgage approvals for house purchase dropped to 53,443 in September from 54,814 in August, Bank of England data showed on Thursday, a slightly greater fall than the median expected fall in a Reuters poll of economists.

Net mortgage lending, which tends to lag behind approvals, also fell more sharply than expected to its lowest since May at £3.866 billion ($5.15 billion).

The US-Iran war has sharply pushed up British government borrowing costs in recent months – with a knock-on effect for mortgage rates – and financial markets see a BoE interest rate hike to 4% from 3.75% as a near certainty next week.

"The continued decline in mortgage approvals and borrowing points to a housing market coming under increasing pressure as affordability constraints and higher mortgage costs weigh on demand," said Richard Pinch, a senior director at financial advisors Broadstone.

Britain's budget watchdog on Wednesday forecast that mortgage repayments were on course to rise to their highest share of household income since 2009 over the next five years.

Unsecured lending to consumers – which is viewed as a reflection of household demand, but sometimes also of stretched finances – grew by an annual of 9.8%, the most since April 2018.

In September alone, unsecured lending rose by £1.914 billion, slightly less than expected and down from a record £2.683 billion in August.

Last week, an official measure of retail sales showed an unexpectedly sharp slowdown in September and Britain's longest-running consumer sentiment gauge recorded its biggest drop since the COVID-19 pandemic this month.