Mortgage lending recovered in June after a subdued start to the second quarter, as the housing market adjusted to changes in stamp duty.
And forward-looking data suggests the upturn will continue into the autumn, according to UK Finance.
Its latest Household Finance Review shows that lending fell sharply in April as many transactions were brought forward to the first quarter to beat the March tax deadline.
Activity picked up in June, with annual growth in lending to first-time buyers and movers rising 14% and 8% respectively. Applications data points to further momentum in the third quarter.
RELAXING AFFORDABILITY
Refinancing remains below expectations despite a large number of fixed-rate mortgages maturing this year, with some borrowers delaying in anticipation of lower interest rates. UK Finance expects remortgaging volumes to rise through the second half of 2025.
The trade body also modelled the potential effects of relaxing mortgage affordability stress tests, which have been in place since 2014. The rules have helped keep arrears low but have limited access to credit, particularly for first-time buyers.
UK Finance data shows that among borrowers now paying above their original stress test rate, 1.75% are in arrears, compared with 0.21% of those still paying below their threshold. This highlights the trade-off regulators face: loosening rules could extend credit to more households but also increase arrears.
Savings balances continued to climb in Q2, with deposits in notice accounts and cash ISAs reaching £295 billion and £205 billion respectively, up 12% and 14% year on year.
RESILIANT MARKET
Eric Leenders, Managing Director of Personal Finance at UK Finance, says: “After April’s stamp duty changes briefly cooled activity, June’s renewed mortgage uptake – and the steady build-up of savings under competitive rates and a stable ISA allowance – demonstrates the market’s resilience as we move into the third quarter.
“The FCA has started a very welcome and important debate on whether mortgage affordability tests can be revised to support higher levels of homeownership.
“We have already seen lenders make changes to help more people get access to mortgage finance. Our analysis shows that a carefully measured easing of stress-test rules can responsibly allow more people – especially first-time buyers – into the mortgage market without leading to a significant increase in arrears levels.”
HOMEBUYER SUPPORT
Mary-Lou Press, President of NAEA Propertymark (National Association of Estate Agents), says: “It’s great to see that many people have thought ahead and taken advantage of rising interest rates by saving more during this period of economic uncertainty, especially as first-time buyers now need to save in some cases over £60,000 to step onto the property ladder.
“Considering that the Bank of England has been able to cautiously reduce interest rates to 4% from August 2025, what’s important now is that we see further encouraging support from the UK Government and all devolved administrations to continue raising the number of property transactions as these play a key role in wider economic growth.”
