Mortgage lending for home purchases recovered in the third quarter after a slump due to the rush to meet the April stamp duty deadline.
This is evident from the latest figures from UK Finance Mortgage lending for home purchases reached £128 billion in the first three quarters of the year, which is 25% higher than the same period last year.
The third quarter data shows that £45.6 billion was borrowed for purchase by both movers and first-time buyers in the three months from July to September, a 43% increase from £32 billion between April and June, which was the immediate aftermath of the stamp duty increase.
However, the total in the third quarter fell short of the £51 billion lent for purchases in the first quarter, as buyers tried to close the loan in time to beat the tax rise.
UK Finance says refinancings also increased in the third quarter, after a slow start to the year.
It said 557,000 remortgages and product transfer loans were made in the third quarter – a 48% increase from the same quarter of 2024.
Internal product transfers continued to account for the majority of refinances, reflecting customers’ preference for ease and speed in settling fixed rate agreements.
The banking association says affordability has improved but is still “very tight”, with first-time buyers still paying around 22% of gross household income in monthly mortgage payments – the highest in almost two decades.
It says the FCA’s recent Mortgage Rule Review has opened a debate over whether lending rules can be adapted to support wider home ownership. “While current rules have helped keep payment arrears low, they also limit access for some groups,” the report says.
Interest-only loans have fallen from more than a quarter of new loans in 2005 to just 1% now, and loans to self-employed borrowers have fallen from 15% to less than 9%, the report said.
At the same time, the report points out that more and more borrowers are stretching loan terms to manage affordability, leading to a rise in loan-to-income (LTI) loans.
The Financial Policy Committee’s cap has kept this in check, but modest easing earlier this year has led to more lending at higher LTIs, especially to first-time buyers, with 11% more FTB lending through the third quarter than in the same period in 2024.
Eric Leenders, managing director of Personal Finance at UK Finance, said: “Mortgage loans returned to growth in the third quarter after a quieter start to the year, while refinancing also increased as more customers entered into fixed rate contracts.
“Affordability remains tight, but recent regulatory changes are helping to increase access at the margins, and the FCA’s review raises important questions about how rules can be adapted to support disadvantaged groups such as the self-employed.”
NAEA Propertymark president Mary-Lou Press says: “Although mortgage activity has increased, the market remains well balanced.
‘The return to credit growth and the sharp increase in refinancing are welcome signs of renewed confidence, but affordability pressures continue to hold back many potential buyers, especially first-time buyers, who are now spending the majority of their income in almost two decades on mortgage payments.
“Many agents continue to see buyers stretching loan terms or relying on higher loan-to-income ratios simply to enter the market; therefore it would be a welcome step to see regulatory changes accompanied by a long-term plan to increase housing supply and actually improve affordability.
“Households continue to save cautiously in times of economic uncertainty, reminding us that confidence remains fragile.
“We hope policymakers focus on reforms that support accessible and sustainable homeownership.”