Housing Market Update: A Volatile Recovery

Our quarterly housing market update confirms that the UK property landscape remains a region of shifting sands. Following a sluggish second quarter, mortgage borrowing returned to growth in the third quarter of 2025. However, this momentum appears fragile. While the upward trend continued into October, activity flattened significantly in November.

These insights come from the latest Household Finance Review published by UK Finance. The data presents a complex picture of a market finding its footing amidst regulatory changes and affordability pressures.

Housing Market Update: Activity Rollercoaster

The recent fluctuation in borrowing figures tells a story of reactive consumer behaviour. The market is currently stabilising, yet it remains sensitive to external policy changes.

The Stamp Duty Effect

Understanding the third quarter’s growth requires looking back at the spring. The second quarter was notably quiet. This slowdown occurred because buyers rushed transactions through in the first quarter. They did this to beat the stamp duty threshold changes introduced in April.

Consequently, demand was pulled forward, leaving a vacuum in Q2. The resurgence in Q3, therefore, represents a return to normality rather than a boom. Lending volumes are now hovering around the stable levels seen throughout 2022.

November’s Plateau

Market optimism hit a ceiling as winter approached. Although October showed promise, the data indicates a distinct flattening in November. This suggests that while confidence has returned, borrowers remain cautious. Economic headwinds continue to influence decision-making for households across Britain.

The Refinancing Surge

Existing homeowners are driving a significant portion of current market activity. They are actively seeking stability in a fluctuating interest rate environment.

Seeking Security

Notably, refinancing volumes skyrocketed throughout the third quarter. Specifically, the data reveals a 48 per cent year-on-year increase in activity. As a result, lenders processed 557,000 loans for customers switching deals. Clearly, this surge indicates many homeowners are leaving previous fixed-rate products.

The Preference for Internal Transfers

Interestingly, borrowers are not necessarily shopping around. Internal product transfers accounted for the vast majority of this financing. Customers are prioritising speed and administrative ease over potentially marginally cheaper rates elsewhere.

Sticking with an existing lender often requires less paperwork. For many, this simplicity outweighs the benefits of a full remortgage process with a new provider.

Housing Market Update: The Affordability Crisis

Despite the return to growth, the financial reality for buyers remains stark. Entering the property market is historically difficult.

Squeezed First-Time Buyers

Affordability metrics are flashing red. First-time buyers are currently dedicating approximately 22 per cent of their gross household income to monthly payments. This is a staggering figure. In fact, this represents the highest income share spent on mortgages in nearly two decades.

UK Finance’s analysis suggests that the market is excluding too many potential buyers. Without intervention, homeownership may become the preserve of the wealthy few.

Regulatory Shifts and Higher LTIs

There is, however, some movement in lending criteria. Earlier this year, the Financial Policy Committee (FPC) relaxed its loan-to-income (LTI) cap. Lenders have responded swiftly.

Consequently, there has been a rise in lending at higher LTI ratios. First-time buyers are the primary beneficiaries of this shift. The third quarter saw an 11 per cent increase in such loans compared to the same period in 2024. This allows buyers to borrow more relative to their salaries, bridging the gap between income and house prices.

The Future of Lending Rules

The industry is now debating whether current regulations are fit for purpose. The balance between consumer protection and market access is under the microscope.

The FCA Mortgage Rule Review

Significantly, the Financial Conduct Authority (FCA) has opened a debate on adjusting lending rules. Ultimately, they aim to support wider homeownership without encouraging reckless borrowing.

Historical comparisons highlight how strict the market has become.

• Interest-Only Mortgages: In 2005, these accounted for over a quarter of new loans. Today, they represent just 1 per cent.
• Self-Employed Borrowers: Lending to this group has plummeted from 15 per cent to less than 9 per cent.

While current rules successfully limit arrears, they arguably stifle innovation and exclude reliable borrowers with unconventional income streams.

Industry Commentary

Experts are calling for a balanced approach. Eric Leenders, managing director of personal finance at UK Finance, provided his assessment.

“Affordability remains tight, but recent regulatory adjustments are helping widen access at the margins.”

Leenders emphasised the importance of the ongoing regulatory conversation.

“The FCA’s review raises important questions about how rules could be adapted to support underserved groups such as the self‑employed.”

Conclusion: Our Housing Market Update

The UK mortgage market in late 2025 is characterised by resilience and caution. Existing homeowners are securing their positions through refinancing. Meanwhile, first-time buyers face high costs but are seeing slight improvements in borrowing capacity. As the FCA reviews its rules, the industry hopes for a framework that protects borrowers while reopening the door to homeownership.