The UK Finance Household Finance Review for Q4 showed this was a 16.3% increase on the year before and the association said 2025 was a “game of two halves”.
Its data showed that house purchase lending was “very strong” in Q1 ahead of the stamp duty changes in April, before normalising in the second half of the year.
UK Finance said “underlying strength” in activity remained in the market, supported by changes to lending policy, while product development and innovation were helping more borrowers pass affordability hurdles.
The value of lending varied through Q3 and Q4 to around levels seen in 2022, when the market was more stable. UK Finance said internal data suggested purchase activity would be flat in 2026, but the value of lending would rise because of higher prices.
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Mortgage affordability pressures nearing 2023 levels
UK Finance expects the growth in purchase activity seen in the second half of last year to “taper off” this year, as affordability pressures are realised. It said changes to lending rules were welcomed and allowed more people to access mortgages, but “there will always be a limit to how far this can help”.
It found that affordability – measured by initial payments as a proportion of income – was “at very stretched levels”.
Even though mortgage rates have fallen since their peak in late 2023, affordability tightened during 2025. By December last year, first-time buyers were agreeing mortgage terms with initial payments accounting for 22.1% of their gross income, just slightly below the levels seen in 2023.
It said: “With affordability metrics already at these very stretched levels and rising, even as rates fall, there is a limit to how much further customers will be able to extend themselves to access mortgage credit.”
It added that the regulatory framework would continue to ensure borrowers could manage this and remain within the parameters of what they can afford.
Borrowers hold off on refinancing with preference for product transfers
Although mortgage refinancing was forecast to show healthy growth last year, this did not materialise in the first half of 2025 but did occur in the second half.
Some borrowers appeared to delay securing a new deal as rates fell, and 1.86 million mortgages were refinanced in 2025, 13.7% higher than in 2024.
Some 511,000 loans were refinanced in Q4, 25% up on the same period the year before. Borrowers still showed a preference for internal product transfers, accounting for 83% of all transactions during the period. This was compared to 75% before 2020, and before social restrictions resulted in a shift towards product transfers, which could be completed remotely and online.
UK Finance said it was yet to see a sustained return to external remortgaging, but further growth in refinancing was expected this year. However, the association was unsure if this would lead to the levels of external remortgaging seen before the pandemic.
Arrears and possessions stay low
The number of mortgages in arrears fell for the seventh consecutive quarter, and by the end of the year, there were 90,050 mortgages in arrears, representing more than 2.5% of the outstanding balance. This was 4.8% lower than in September.
Arrears fell across the board, from those in lighter, early arrears to accounts that had been in heavier arrears for some time.
The number of accounts in arrears was just 12.3% higher than the recent historical low recorded in September 2022.
There was also a fall in possession numbers as a voluntary pause was imposed over the festive period.
Some 1,980 mortgage properties were taken into possession in Q4, a 13.5% decline on the preceding quarter. However, this was 14.5% higher than the same period last year.
Over the year, there were 8,430 mortgage possessions involving homeowners and buy to let (BTL), 31% higher than in 2024. UK Finance said this was due to increased activity and courts going forward with possessions.
Last year saw the highest number of possessions in a decade, but UK Finance said this was in the context of artificially suppressed numbers. Between 2015 and 2019, possessions were paused as the industry waited for the Financial Conduct Authority’s (FCA’s) updated guidance on the treatment of arrears, then again following the pandemic in 2020.
UK Finance said normal possession activity had not taken place in the last 10 years as part of measures to protect borrowers, but it expected a return to normal in 2026. However, numbers should stay low by normal historical standards.
The association has predicted 9,400 possessions will take place this year.
