Mortgage lending climbed 16% in 2025 to its highest level since the pandemic as first-time buyers returned in force and refinancing activity surged in the second half of the year.

The latest Household Finance Review from UK Finance shows 720,000 house purchase loans were advanced last year, up 16.3% on 2024.

Activity in Q1 was boosted by borrowers racing to beat April’s stamp duty changes, before settling at just above standard levels for the remainder of the year.

First-time buyer lending rose sharply, with 391,000 loans completed in 2025 compared with 332,000 in 2024. However, affordability pressures remain intense.  In Q4, first-time buyers were typically spending 22.1% of their gross income on initial mortgage repayments – close to peak levels seen in 2023 despite the easing of lending rules by the Financial Conduct Authority (FCA) in July.

Refinancing strengthened markedly as rates began to fall. Some 511,000 loans were advanced in Q4 alone, up 25% year on year, with internal product transfers remaining the most common route. With more fixed-rate deals due to mature in 2026, further growth in refinancing is expected.

MORTGAGE ARREARS

The number of mortgages in arrears fell to 90,050 in Q4 – the seventh consecutive quarterly contraction. Possessions dipped over the period, reflecting the industry’s voluntary pause during the holiday season.

Savings behaviour also shifted with deposits into Cash ISAs up 15% year on year in December, while notice account balances rose 10%.

Overdraft use remained historically low, with only 2% of overdrafts showing signs of financial difficulty. Credit card balances accruing interest accounted for 47.6% of outstanding balances, and balance transfers made up just 4% of lending, down from 11% in Q2.

AFFORDABILITY STILL TIGHT

Eric Leenders, managing director of personal finance at UK Finance, said: “The mortgage market saw strong growth in 2025, with lending reaching its highest level since the pandemic and first-time buyer numbers supported by innovative products to widen access.

“Affordability remains tight despite regulatory easing, but the continued fall in arrears is reassuring, and gradually easing rates should help support borrowers in the year ahead.”

“Household savings continued to grow in the final quarter of 2025, while credit card balances with interest remained at record lows, with consumers increasingly using credit cards for ease and convenience rather than to manage financial pressures.”