Mortgage lending staged a rebound in June after a subdued start to the second quarter, according to UK Finance’s latest Household Finance Review.
The trade body said mortgage activity dipped in April as buyers rushed to complete transactions ahead of Stamp Duty changes, with lending volumes recovering steadily through May before accelerating in June.
Lending to first-time buyers grew 14% year-on-year in the month, while lending to home movers was up 8%. Forward-looking application data points to continued momentum into the third quarter.
Remortgaging has remained weaker than expected despite a large number of fixed-rate deals maturing this year, with some customers holding off in anticipation of further base rate cuts. UK Finance expects refinancing activity to increase over the remainder of 2025.
The report also models the potential impact of changes to the Financial Conduct Authority’s affordability rules. Introduced in 2014, the mortgage stress test was designed to ensure borrowers could withstand higher interest rates. It has been credited with keeping arrears low, but UK Finance noted it has also restricted access to credit, particularly for first-time buyers.
ARREARS MODELLING
Analysis shows that among borrowers now paying interest rates above the level at which they were originally stress-tested, 1.75% are in arrears. This compares with just 0.21% of those paying below that threshold. UK Finance suggested that easing the rules could open the market to more borrowers with only a modest increase in arrears.
Its modelling indicates that every additional 10,000 mortgages issued under looser stress rates could result in about 175 extra loans in arrears.
The FCA has recently begun consulting on whether the rules could be revised to support higher levels of home ownership. However, UK Finance warned that any loosening of criteria could drive up demand without an equivalent increase in supply, pushing house prices higher and eroding affordability.
Household savings also grew during the second quarter, supported by competitive deposit rates and the unchanged ISA allowance. By the end of June, balances in notice accounts had risen 12% year-on-year to £295bn, while cash ISAs stood at £205bn, up 14% on June 2024.
Eric Leenders, managing director of personal finance at UK Finance, said: “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.”
