UK Finance assesses impact of lending policy changes
Mortgage lending in the UK rebounded in June after a subdued start to the second quarter, UK Finance’s latest Household Finance Review for Q2 2025 has revealed.
Lending activity fell in April following changes to Stamp Duty, as many transactions were completed earlier in the year to avoid the new rules. However, June saw a notable recovery, with year-on-year growth in lending to first-time buyers and home movers rising by 14% and 8% respectively.
Application data indicates that this momentum is likely to continue into the third quarter.
Despite a significant number of fixed rate mortgages reaching maturity in 2025, refinancing volumes have not yet shown sustained growth. UK Finance suggests that some borrowers may be waiting for potential interest rate reductions before remortgaging. Nevertheless, remortgaging activity is expected to pick up as the year progresses.
The UK Finance review also considers the impact of the Financial Conduct Authority’s (FCA) mortgage affordability stress test, which has been in place since 2014. The rules have helped keep arrears low on mortgages granted since their introduction, but have also limited access to credit for some borrowers.
The report notes that the proportion of borrowers currently paying above their original stress test rate stands at 1.75% in arrears, compared with 0.21% among those paying below that threshold. UK Finance estimates that for every 10,000 additional mortgages issued under a less stringent stress test, around 175 could fall into arrears, assuming other factors remain unchanged. Annually, between 600,000 and 700,000 new house purchase mortgages are written, with approximately 87,000 homeowner mortgages currently in arrears.
The report also noted that any relaxation of lending criteria that increases demand without a corresponding rise in housing supply could put upward pressure on house prices, further affecting affordability.
“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,” said Eric Leenders (pictured right), managing director of personal finance at UK Finance.
“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.”
Mary-Lou Press, president of industry body NAEA Propertymark, said many people had used the period of higher interest rates to save more, which was crucial given that first-time buyers now often need over £60,000 to get on the property ladder.
“Considering that the Bank of England has been able to cautiously reduce interest rates to 4% from August 2025, what’s important now is that we see further encouraging support from the UK Government and all devolved administrations to continue raising the number of property transactions as these play a key role in wider economic growth.”
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