The total value of outstanding residential mortgage loans in the UK rose to a record £1,678.2 billion in Q4 2024, marking a 0.5% increase from the previous quarter and a 1.3% rise year-on-year, according to the latest Bank of England mortgage lending data.
The report highlights an uptick in mortgage activity, with gross mortgage advances rising by 4.9% on the quarter to £68.8 billion—the highest level since late 2022. Meanwhile, new mortgage commitments surged by over 50% compared to a year ago, reaching £69.3 billion, indicating a strong pipeline of lending in the coming months.
FIRST-TIME BUYERS DEFY AFFORDABILITY CHALLENGES
Despite ongoing affordability pressures, first-time buyer activity remains robust, with their share of mortgage lending hitting 29.6%—the highest level since records began in 2007. However, with loan-to-income (LTI) ratios rising to 45.8%, borrowers are stretching their finances further to access homeownership, particularly in higher-priced regions.
Holly Tomlinson, financial planner at Quilter, noted that buyers are adjusting to the “new normal” of mortgage rates and are preparing earlier to secure the best possible deals.
“More strikingly, new mortgage commitments have surged by over 50% compared to a year ago, indicating that many buyers and homeowners are keen to secure finance despite ongoing concerns over interest rates and house price trends,” she said.
“Many first-time buyers are taking shorter-term fixed rates due to optimistic views on the future of the market. However, the ability to borrow is being pushed to its limits, with lending to borrowers at high loan-to-income ratios also on the rise.”
ARREARS RISE BUT REMAIN STABLE RELATIVE TO OVERALL LENDING
While total mortgage lending has hit record highs, the report shows that financial strain persists for some households. The total value of outstanding mortgage balances with arrears increased by 1.3% to £22.1 billion, an 8.4% rise year-on-year. However, the proportion of all mortgage balances in arrears remained steady at 1.3%, only 0.1 percentage points higher than the previous year.
Encouragingly, new arrears cases—while up 2.3 percentage points from the previous quarter—remain 1.5 percentage points lower than a year earlier. Additionally, the number of new possessions in Q4 2024 decreased slightly by 0.8% to 2,057, suggesting that while some borrowers face financial difficulties, the situation is not worsening significantly.
Tom Cuppello, director of risk at Broadstone, said: “While there has been an increase in the absolute value of arrears, the fact that new arrears cases remain lower than the same period last year and possessions have slightly declined suggests that financial pressures, while still present, may be less acute than before.”
LOOKING AHEAD
With mortgage rates slightly easing and a rush to complete transactions ahead of tax changes in April, activity remains strong. However, cost-of-living pressures and historically high rates continue to pose challenges.
The Bank of England is expected to lower interest rates gradually in 2025, but uncertainty remains over the timing and scale of cuts. The introduction of Stamp Duty changes in 2025 could also impact demand, particularly among first-time buyers who currently benefit from higher tax-free thresholds.
Tomlinson cautioned that borrowers should remain cautious about overextending themselves, adding: “While expectations are growing that the Bank of England will cut rates further later this year, there is still uncertainty over when and by how much. Many lenders have already lowered mortgage rates slightly, but with borrowing costs still higher than they were a few years ago, affordability pressures persist.”
Meanwhile, Cuppello emphasised the need for lenders to balance customer support with financial risk management.
“Given these factors, it will be crucial for lenders to balance their approach, ensuring they support customers while navigating evolving financial conditions.”
