The Bank of England’s 2025 Q3 Mortgage Lenders and Administrators Return shows a notable uplift in lending volumes after a subdued period, with gross advances rising at their fastest pace since 2020.

However, the data also highlights continued affordability pressures, particularly for first-time buyers navigating high loan-to-value and loan-to-income ratios.

ACTIVITY REBOUNDS FROM A WEAK BASE

The outstanding value of all residential mortgage loans increased to £1,733.7 billion, up 0.9% on the previous quarter and 2.9% higher than a year earlier. Gross mortgage advances rose 36.9% to £80.4 billion, the strongest quarterly increase since 2020 Q3, leaving volumes 22.7% higher than in 2024 Q3.

New mortgage commitments also edged higher, rising 1.6% to £79.4 billion, the highest level recorded since 2022 Q3. This marks an annual increase of 20.3%.

BUYER DEMAND RETURNS, BUT STRAINS ARE EVIDENT

The share of lending at over 90% loan-to-value increased to 7.4%, the highest since 2008 Q2 and 0.8 percentage points above the same period last year. High loan-to-income lending also rose strongly, up 3.3 percentage points to 44.7%, the sharpest quarterly increase since 2020 Q3, although still 0.6 points lower than a year ago.

House purchase activity strengthened, with the share of gross advances for owner-occupied house purchase rising 2.5 percentage points to 58.6%, though it remained 5.8 points lower year on year. By contrast, remortgaging softened slightly to 28.6%, down 0.4 points from Q2 but still 5.8 points higher than in 2024 Q3.

ARREARS REMAIN LOW

The value of outstanding mortgage balances with arrears fell 2.9% to £20.6 billion and is now 5.8% lower than a year earlier. The proportion of total mortgage balances with arrears remained unchanged at 1.2% and is 0.1 points lower year on year.

New arrears cases represented 8.8% of all balances with arrears, a fall of 0.1 points from Q2 and the lowest level since 2022 Q1.

MARKET IMPROVING BUT AFFORDABILITY STILL DOMINATES

Ian Futcher, financial planner at Quilter, said: “Mortgage lending has picked up meaningfully in the latest figures, but it’s important to remember this comes after a very slow year in the housing market. High interest rates and affordability pressures kept many would-be buyers on the sidelines.

“Gross mortgage advances jumped by almost 37% compared to the previous quarter and are now nearly a quarter higher than a year ago, while new mortgage commitments reached their highest level since late 2022.

“That suggests growing confidence as mortgage rates inch down and people begin to move forward with plans they may have paused.

“Even so, the data shows how tough it remains for those trying to buy. Lending at over 90% loan-to-value has risen to its highest share since before the financial crisis, and a rising proportion of borrowers are stretching their incomes further to secure a home.

“This reflects the reality of high house prices and the lingering impact of elevated borrowing costs.

“There is some reassuring news, with mortgage arrears still very low and falling versus last year, indicating that households who already have mortgages are largely managing repayments despite the squeeze.

“Overall, the market is improving from a weak base, but affordability challenges remain front and centre, particularly for first-time buyers. Continued reductions in mortgage rates will be key to ensuring this recovery is sustainable rather than reliant on people taking on greater financial strain.”