UK mortgage lending market roundup - Q1 2025

The UK residential mortgage market continued its recovery in Q1 2025, building on the momentum seen at the end of last year. While lending volumes and activity increased, the market remains shaped by a mix of optimism and caution as lenders and borrowers adapt to economic uncertainty, regulatory reform, and shifting consumer behaviours.

Mortgages

According to the FCA’s latest data, the residential mortgage sector saw further growth in Q1 2025, with first-time buyers (FTBs) and home movers remained the main drivers of activity.

• FTB lending rose to 31.4% of all advances - its highest share since records began in 2007.
• While home movers accounted for 34.9% - supported by lower mortgage rates, ongoing wage growth, and anticipation of the new Stamp Duty thresholds coming into effect from April 2025.

Despite this positive momentum, overall mortgage activity remains below pre-2022 peaks, underlining the lasting impact of the 2023 downturn.

Although initial expectations for refinancing activity in 2025 were high, refinancing activity was notably weak in the first quarter of 2025. According to data from UK Finance, overall mortgage refinancing volumes fell by 13% during the quarter, predominantly due to a smaller pool of those mortgages due to expire in the early part of the year. Product transfer continued to be the most popular refinancing option, though their share edged down slightly from the previous year.

A notable driver of heightened activity among both first-time buyers and home movers in Q1 2025 was the impending change to Stamp Duty thresholds from 1 April. Many purchasers accelerated their transactions to benefit from the more generous previous rates, particularly first-time buyers keen to avoid the reduction in the nil-rate band from £425,000 to £300,000 and home movers seeking to sidestep higher bills. As a result, a portion of Q1’s lending surge reflects this one-off pull-forward, and activity may moderate in subsequent quarters as the market adjusts to the new regime.

Buy-to-Let

According to UK Finance’s latest data, the performance of the buy-to-let (BTL) market in Q1 2025 was reasonably consistent with that of Q4 2024.

• There were 58,347 new BTL loans advanced in Q1 2025, worth £10.5bn. This represents a 38.6% increase in the number, and 46.8% increase in the value of loans advanced when compared with Q1 2024.
• BTL rental yields saw marginal improvements too with average yields of 6.94%, compared to 6.88% in Q1 2024.
• Average mortgage interest rates continued to fall to 4.99% in Q1 2025, down from 5.09% in the previous quarter (Q4 2024).
• This drop has meant that higher BTL interest cover ratios (ICR) seen in Q4 2024 were sustained at 202%.
• The number of fixed-rate BTL mortgages outstanding remained largely unchanged from the previous quarter at 1.44m – signifying continued financial caution among landlords.

The UK buy-to-let (BTL) market continues to demonstrate underlying strength and resilience, supported by robust rental yields and persistent demand for rental properties. However, recent years have seen a marked shift in landlord and investor behaviour due to significant regulatory and fiscal developments - most notably, the phased removal of mortgage interest relief, higher Stamp Duty Land Tax (SDLT) rates on second homes, the introduction of the Renters’ Rights Bill, and enhanced energy efficiency requirements. As a result, BTL mortgages now make up a slightly smaller proportion of the total UK mortgage market - down 0.3% compared to the previous year - as some landlords exit, citing concerns about affordability and reduced ability to manage problematic tenancies under new legislation.

Despite these pressures, the sector’s fundamentals remain robust. Growth is now more selective, with investors adopting increasingly strategic approaches to portfolio management and asset selection. In the near term, these trends may create challenges for renters, given supply constraints and sustained rental demand. However, as more landlords sell poorly performing or unwanted properties, this could ultimately boost housing supply for owner-occupiers and help stabilise the wider housing market.

Later Life

Later life lending maintained its upward trajectory in Q1 2025, with older borrowers increasingly active in the market.

According to recent data from UK Finance, new loan volumes to older borrowers rose by 33.5% compared to Q1 2024, totalling £6.1 billion. Within this segment:

• 5,620 new lifetime mortgages were advanced, totalling £530 million.
• Retirement interest-only mortgages also saw growth, with 339 new loans worth £33 million (up 17.9% year-on-year).

Later life lending accounted for 7.6% of all residential loans and 21.5% of all BTL loans, underlining its growing significance.

Equity Release

The equity release market continued to gain momentum in Q1 2025, as more homeowners sought to unlock property wealth.

According to the Equity Release Council’s latest data, total lending for the quarter reached £665 million, a 32% increase compared to Q1 2024.

New customer numbers were closely in line with Q4 2024 numbers, but represented a 14% increase on an annual basis. Average loan sizes for both drawdown and lump sum lifetime mortgages increased once again, supported by rising house prices and growing consumer confidence. Drawdown plans still made up the majority of new facilities but fell slightly from 57% in Q4 2024 to 53% in Q1 2025.

Despite continued growth in popularity of equity release products, accessibility worsened as rates increased to highs of 7.15%, up from 6.67% in Q1 2024.

Risk insights

Arrears

Mortgage balances with arrears for residential mortgages declined in Q1 2025, with total value down 2.9% on Q4 2024, but still remaining just under 1% higher than Q1 2024.

At the end of Q1 2025, 11,830 BTL mortgages were in arrears greater than 2.5% of outstanding balances. This figure is down by 780 mortgages from Q4 2024.

This improvement was supported by continued low unemployment and easing cost pressures. However, the outlook for the rest of 2025 is mixed, as potential labour market weakness could challenge this positive trend later in the year.

Possessions

New  mortgage possessions rose by 12.3% from the previous quarter to 2,307 cases, 10% higher year-on-year.

BTL mortgage possessions also rose during the first quarter of 2025. There were 810 BTL possessions in Q1 2025, up 28.6% from the previous year.

For lenders, effective management of possessions will require ongoing investment in borrower engagement and operational efficiency.

Concluding thoughts

Q1 2025 further cemented the recovery of the UK mortgage market. However, it’s important to note that much of this heightened activity was fuelled by buyers rushing to complete transactions ahead of the Stamp Duty threshold changes that came into effect on 1 April 2025. As a result, it is likely that some demand was brought forward from later in the year, suggesting that Q2 may see a period of normalisation and more subdued activity as the market adjusts following this deadline.