Mortgage lending surged in Q3 as buyers returned to the market but the latest Bank of England figures show that affordability pressures remain firmly embedded.
The 2025 Q3 Mortgage Lenders and Administrators Return (MLAR) reveals the strongest quarterly rise in lending activity since 2020, following what has been a long period of subdued demand.
Yet behind the rebound sits a market where borrowers are still relying on higher loan-to-value (LTV) and loan-to-income (LTI) ratios to get deals over the line.
The outstanding value of all residential mortgages climbed to £1.73 trillion – up 0.9% on the quarter and 2.9% year on year. Gross advances jumped 36.9% to £80.4bn, marking the fastest quarterly increase since Q3 2020 and leaving lending volumes 22.7% higher than the same time last year.
HEALTHY PIPELINE
New mortgage commitments edged up too, rising 1.6% to £79.4bn, the highest since Q3 2022 and more than 20% above 2024 levels. After several sluggish quarters, the pipeline is looking far healthier.
More borrowers are pushing deeper into high-risk territory to secure a home. Lending above 90% LTV rose to 7.4% of all advances – the highest since 2008. High LTI lending also spiked, reaching 44.7%, the sharpest quarterly jump since 2020, even if still slightly below last year’s levels.
House purchase activity gained momentum, with its share of lending rising 2.5 points to 58.6%.
Even so, it remains materially lower than a year ago, showing how far the market still has to recover. Remortgaging dipped marginally to 28.6%, though it is notably stronger than in Q3 2024, when many borrowers were braced for steeper rate rises.
ARREARS STILL LOW AND FALLING
Despite stretched affordability, arrears continue to edge downward. The value of mortgage balances with arrears fell 2.9% to £20.6bn and is now almost 6% lower than a year earlier.
The proportion of total balances in arrears remained steady at 1.2%. New arrears cases also dropped to their lowest level since early 2022.
As rates stabilise and confidence improves, momentum is returning, but affordability remains the defining friction point for buyers heading into 2026.
REMARKABLE RESILIENCE
Simon Gammon, Managing Partner, Knight Frank Finance, says: “Mortgage lending data has been volatile through 2025.
“The second quarter was unusually weak as buyers brought forward purchases to avoid changes to stamp duty thresholds on April 1st, so the 36.9% quarterly rise in gross mortgage advances is the market reverting back to trend.
“That said, £80 billion in advances represents a remarkable display of resilience given the fiscal and economic uncertainties that borrowers faced during the three months through September.”
LENDERS TRIMMING RATES
And he adds: “The value of new mortgage commitments surged by more than a fifth year-on-year.
“Borrowers can now access fixed rates as low as 3.55%, and while that’s quite a bit higher than before the pandemic, mortgage rates have settled at a level that buyers are clearly comfortable with.
“Should inflation data continue to move in the right direction, lenders will keep trimming rates and we should see a busier spring selling season in 2026.”
