Mortgage lending activity rebounded in Q3, after stamp duty changes caused a downturn in Q2, and this is expected to continue rising going forward.
The UK Finance Household Finance Review found that in June, purchase lending returned to annual growth and carried on into Q3.
Lending levels are now similar to 2022, and the organisation said internal data suggested that purchase lending remained strong in October but levelled off in November.
Refinance activity also showed annual growth, with this starting to pick up at the end of Q2.
UK Finance said this growth “accelerated” in Q3, rising 48% year-on-year.
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Product transfers dominate
Product transfers still made up a significant proportion of refinance activity, maintaining the trend seen since 2022 when rates first started to rise.
So far this year, product transfers have accounted for 82% of all refinancing, compared to 75% before the pandemic.
UK Finance said this occurred despite the easing of affordability pressures, which opened up remortgage options for borrowers. The organisation said this might be a result of consumer preference, as the people refinancing now would have previously done so either during the pandemic or the cost-of-living crisis. It said the ease and speed of product transfers influenced borrower behaviour rather than eased affordability.
UK Finance predicted that refinancing activity would rise for the rest of the year and into 2026, driven by the number of loans expiring.
Affordability remains ‘tight’
UK Finance said affordability pressures had reduced following a peak in late 2023 but remained constricted.
Its data showed that in Q4 2023, first-time buyers were spending an average of 22.5% of their household income on monthly mortgage payments, which was higher than the levels seen during the global financial crisis.
This eased by the end of that year but rose to 22% in the summer of 2024.
UK Finance said affordability had stabilised since then as rates fell, but initial affordability metrics were still at levels that had not been seen by a generation of mortgage borrowers before.
It questioned how long lending could be maintained at the current affordability levels, but said recent changes to rules should support more lending in a stressed environment.
Mary-Lou Press, president of NAEA Propertymark, said: “While mortgage activity has picked up, the market remains finely balanced. The return to growth in lending and the sharp rise in refinancing are welcome signs of renewed confidence, but affordability pressures continue to hold many prospective buyers back, particularly first-time buyers, who are now committing the highest share of their income to mortgage payments in nearly 20 years.
“Many agents are still seeing buyers stretch loan terms or rely on higher loan-to-income ratios simply to enter the market; therefore, it would be a welcome step to see regulatory change matched with a long-term plan to increase housing supply and genuinely improve affordability.
“Households continue to save cautiously amid economic uncertainty, reminding us that confidence remains fragile. We hope that policymakers focus on reforms that support accessible and sustainable homeownership.”
Mortgage rule changes could go further
In light of the Financial Conduct Authority’s (FCA’s) discussion paper on a Mortgage Rules Review, UK Finance assessed the borrower segments that were said to be under-served.
It said the main difference between lending today and lending before the FCA rules was the level of interest-only lending, where in 2005, before the global financial crisis, a quarter of new house purchase loans were on an interest-only basis, compared to just 0.1% today.
UK Finance also found there had been a decline in lending to self-employed borrowers, falling from 15% of purchase activity in 2005 and 8.6% in 2025. The organisation said this was because of FCA rules, which limited the types of borrowing that could be useful to self-employed borrowers and requirements for income verification.
It said even though a similar proportion of the workforce was self-employed compared to 2005, rules around income verification and interest-only borrowing constrained access to these borrowers.
To improve this, UK Finance suggested “carefully considered changes” to interest-only lending rules.
It identified a “sharp rise” in higher loan-to-income (LTI) borrowing, particularly for first-time buyers, and longer mortgage terms made high LTI more possible.
UK Finance said the changes had helped increase market access where previous regulation could have caused a barrier, but additional changes could improve access further.
Eric Leenders, managing director of personal finance at UK Finance, said: “Mortgage lending returned to growth in the third quarter after a quieter start to the year, while refinancing also increased as more customers rolled off fixed rate deals.
“Affordability remains tight, but recent regulatory adjustments are helping widen access at the margins, and the FCA’s review raises important questions about how rules could be adapted to support under-served groups such as the self‑employed.”
Arrears continue to fall
Mortgage arrears continued to decline in Q3, making it the sixth consecutive quarter of contraction.
In Q3, some 94,580 mortgages were in arrears of more than 2.5% of the outstanding balance, a 4.2% fall compared to June.
This represented declines in light, early arrears, to heavier accounts that have been in arrears for some time.
On the other hand, possessions rose by 41% year-on-year to 2,290, which UK Finance said was “unwelcome but expected”.
It said most of these possessions were older mortgages, which were written with less strict rules, and these borrowers were less able to maintain payments during financial adversity.
