The UK Finance Household Finance Review for Q2 showed there was a “steep drop” in lending activity in April, which the organisation said was “entirely normal” following a stamp duty change.
This included a 15% decline in first-time buyer numbers and a 31% fall in movers when compared to the same month last year.
Activity levelled out in May, with just a 13% fall in movers and flat first-time buyer numbers, then this rose in June with a 14% increase in first-time buyer numbers and an 18% uptick in movers.
Despite this recovery in June, purchase activity in Q2 was down by around 10% when compared to the same quarter in 2024. However, based on the volume of applications seen in Q2, UK Finance said it expected to see a lift in activity in Q3 but said this would not be on the scale of the rush seen in Q1.
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.”
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No refinance boom
Although around 1.6 million fixed rate mortgages are due to end this year compared to 1.4 million last year, UK Finance said there were few signs of growth in this part of the market.
Some 744,000 fixed rate deals were scheduled to end in the first six months of the year, and combined with loans that were already on standard variable rates (SVRs), this accounted for just under 1.3 million mortgages that were able to refinance without incurring early repayment charges (ERCs).
However, just 785,000 mortgages, or 61% of this stock, actually refinanced between January and June this year.
By contrast, 65% of the 1.3 million mortgages that were free to refinance in the first half of 2024 were rebooked.
UK Finance said the smaller share of ‘free-to-move’ refinances was probably due to falling numbers of loans on SVR, with nearly 100,000 fewer at the start of 2025 than the previous year. Meanwhile, more of those who stay on the SVR have low outstanding balances and would not benefit as much from refinancing.
Further, with new mortgage rates going down, UK Finance suggested some borrowers were choosing to stay on the SVR for a short time in hopes of getting a better rate later this year.
Mortgage arrears continue to dwindle
Mortgage arrears fell for the fifth consecutive quarter and there were 98,840 in arrears of more than 2.5% of the overall balance at the end of June, a 3.1% contraction on the number in March.
UK Finance said that within this, it was seeing arrears fall across the lightest and most severe cases, including those that have been in arrears for some time.
Although long-term arrears are falling, the data showed that those who were “deeply entrenched” in arrears faced possession.
The number of mortgage possessions rose 32% year-on-year in Q2 to 2,140, which was in line with the small number of unrecoverable arrears cases.
UK Finance said the increase seemed high in percentage terms but was compared to “artificially low” numbers since 2020, when there was a moratorium on possessions. Possession numbers are still returning to levels seen before the pandemic and on an annualised basis, the 4,170 possessions taken through the first half of this year are around the level seen in 2015, when possessions were low and stable.
Going forward, the level of possessions is expected to remain the same or slightly higher.
Impact of changing lending rules on mortgage access
UK Finance analysed the impact of lending rules on access to mortgages and homeownership.
It said stress rates had protected people from arrears and even in a rising rate environment, almost all borrowers refinanced at less than their stress rate.
Since the base rate first started to rise in 2021, just 2% of loans were refinanced at a rate higher than their previous stress rate.
This has also kept arrears low and with the rules coming into force in 2014, almost no loans written since 2015 have seen a rate higher than the stress rate when refinancing.
While loans written since 2015 make up 83% of mortgage accounts, just 40% of these account for all arrears, meaning the majority are from before lending rules changed.
UK Finance said although these rules had protected consumers, they also restricted access to lending and primarily affected high-leveraged borrowers such as first-time buyers.
It said more lending at lower stress rates would improve this, with a limited impact on arrears.
When lending at lower stress rates, UK Finance found the arrears rate across these loans was currently 1.75% and if no changes were made, for every additional 10,000 loans lent at lower stress rates, there would be around 175 additional arrears.
It said there would be a bigger impact on arrears depending on how significant any potential additional changes were. Also, loosening that would increase demand without extra housing supply could lead to higher house prices and tightening affordability.
Leenders added: “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.”
