While mortgage lending exercise fell in early Q2 following Stamp Duty adjustments it had recovered by June, in keeping with UK Finance’s newest Household Finance Review for Q2 2025.
The assessment additionally pointed to continued momentum into the third quarter with the variety of functions acquired seeing a probable uptick
The FCA’s mortgage affordability stress check has helped maintain arrears low on mortgages granted since its introduction, however has executed so by limiting entry to credit score.
UK Finance evaluation suggests {that a} modest improve in lending, enabled by decrease stress charges, might enhance entry to mortgages—particularly for first-time consumers—with out considerably elevating arrears.
Mortgage lending declined within the second quarter of the yr, as many home buy transactions had been introduced ahead to Q1 to keep away from the Stamp Duty adjustments.
The dip in mortgage lending in early Q2 was concentrated in April, and after smaller declines in May, June noticed a rebound, with annual development in lending to first-time consumers and movers up 14% and eight% respectively.
Despite numerous fixed-rate mortgages maturing this yr, refinancing has but to indicate sustained development and stays under expectations, with some prospects possible delaying in anticipation of additional rate of interest cuts. Nonetheless, UK Finance expects remortgaging exercise to extend over the rest of the yr.
Changes to lending guidelines
The assessment stated that rising rates of interest since 2022 had been the primary significant check of the FCA’s 2014 lending guidelines. Despite sharp will increase, most debtors coming off mounted fee mortgages throughout this era confronted charges under the degrees they had been initially stress-tested towards.
The fee a buyer pays relative to their unique stress check threshold has a notable affect on the chance of falling into arrears. UK Finance knowledge exhibits that amongst debtors now paying above their earlier stress check fee, 1.75% are at the moment in arrears—in contrast with simply 0.21 % of these paying under that threshold.
UK Finance says this demonstrates that the lending guidelines have generated two key outcomes: they’ve helped maintain arrears low; however have executed so by limiting entry to credit score. As a consequence, many potential debtors have discovered their skill to safe a mortgage constrained.
The assessment stated it was heartened by the FCA being open to dialogue on whether or not—and the way—these guidelines could be revised to assist greater ranges of homeownership. Any adjustments would contain accepting a better danger of future arrears.
Modelling primarily based on the 1.75% arrears fee famous above means that, if all different components remained fixed, every further 10,000 mortgages issued at a much less stringent stress check fee might result in roughly 175 further loans falling into arrears.
To put these figures into perspective: annually, between 600,000 and 700,000 new home buy mortgages are written, and there are at the moment round 87,000 house owner mortgages in arrears.
However, UK Finance suggests any loosening that considerably boosts demand with no corresponding improve in housing provide would possible drive-up home costs, negatively impacting affordability.
Commenting on the most recent findings UK Finance managing director of private finance Eric Leenders, stated: “The FCA has began a really welcome and necessary debate on whether or not mortgage affordability exams may be revised to assist greater ranges of homeownership. We have already seen lenders make adjustments to assist extra folks get entry to mortgage finance.
“Our evaluation exhibits {that a} fastidiously measured easing of stress-test guidelines can responsibly enable extra folks – particularly first‐time consumers – into the mortgage market with out resulting in a major improve in arrears ranges.”
