UK Finance has reported a return to growth in mortgage lending during the third quarter of 2025, following a subdued Q2 when many transactions were brought forward ahead of Stamp Duty changes.
The organisation’s latest Household Finance Review also shows refinancing activity increasing sharply, with volumes up nearly 50% year-on-year as more borrowers rolled off fixed-rate deals.
Affordability, however, remains under strain. UK Finance noted that first-time buyers are now spending around 22% of gross household income on monthly mortgage payments, the highest level for almost two decades.
The review highlights that although recent regulatory adjustments have widened access slightly, further modest reforms could support underserved groups, including the self-employed, without driving unsustainable demand.
Interest-only lending has dropped from more than a quarter of new loans in 2005 to around 1% today, while lending to self-employed borrowers has fallen from 15% to under 9%.
Mortgage activity in Q3 was broadly consistent with the stable levels seen in 2022. Forward-looking data suggests growth continued into October before levelling off in November.
Refinancing reached 557,000 loans in Q3, up 48% on the same period in 2024, with internal product transfers remaining the dominant refinancing route.
Savings also continued to grow but at a slower pace. Deposits in notice accounts and cash ISAs rose by ten per cent or more through the quarter as households maintained precautionary buffers ahead of the Autumn Budget.
At the end of September, households held £295bn in notice accounts and £207bn in cash ISAs, representing annual increases of ten per cent and 14% respectively.
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 underserved groups such as the self-employed.
“Savings growth has moderated but remains strong by historic standards, with households continuing to build precautionary buffers against an uncertain economic backdrop ahead of the Autumn Budget.”
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 twenty 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.”
