The Q2 Household Finance Review from UK Finance shows an expected drop in purchase transactions following stamp duty changes. But with mortgage lending returning to growth, the financial services trade association says the data suggests continuing underlying momentum.

Despite the anticipated decrease in purchase activity following the large spike in March, Q2 applications were up slightly year-on-year. First time buyer numbers fell by 15% in April with movers down 31% compared to 2024. By May, the drop in movers was at 13% year-on-year with first time buyer numbers showing no change.

In June, lending returned to growth for both first time buyers (14%) and movers (8%) resulting in the overall Q2 year-on-year change being down by around 10%. ‘Looking ahead, applications data suggest we will see a pick-up in activity in Q3, albeit not on the scale of that seen in the Q1 rush to beat the Stamp Duty changes’, UK Finance noted.

The refinancing market was subdued, with expected growth due to 744,000 fixed rate mortgages scheduled to end in the first six months of the year not materialising. Only 61% of mortgages free to refinance with incurring penalties did so, compared to 65% last year.

‘Some of the relative weakness this year may be related to the continuing contraction in the stock of mortgages on standard variable rates, with almost 100,000 fewer at the start of this year than one year previously and more of those remaining on SVR having low balances outstanding (with therefore less to gain from refinancing)’, UK Finance explained.

“It may also be that, with new mortgage rates on a downward path, a proportion of customers are choosing to remain on SVR for a short period, in expectation of getting a better rate later in the year.”

 Mortgage arrears continued to fall for the fifth consecutive quarter, down 3.1% since March. The report notes:

“Within this, we are now seeing  arrears numbers fall across the board, from the lightest, early arrears cases through to the heaviest – many of which have  been in arrears for some time. We have seen this contraction even whilst the drivers of the earlier increase persist. Mortgage rates, though falling, are still significantly higher than in 2021. Similarly, inflation is down close to target but pressure on household budgets from higher bills remain.

“As we have observed in previous Reviews, the resilience of the mortgage customer base in the face of these pressures owes much to the stricter underwriting criteria in place for the last ten years. Although continuing low unemployment has been a major factor as well, these rules have ensured that all new loans have greater resilience against higher rates and other negative shocks to their finances.”

Arrears are expected to fall further as rates continue to move downwards and wage growth eases affordability issues.

Possessions in Q2 were 32% higher than in Q4 of 2024, but numbers remain low. ‘These increases are in line with expectations as the industry works through the small stock of unrecoverable arrears cases’, UK Finance said.

“The recent rises appear high when viewed in percentage terms, but only by comparison with the artificially low numbers since 2020, with levels still recovering from those seen through the pandemic when a possessions moratorium was in force…Through the second half of 2025 we expect possessions to remain at current levels or slightly above, as the industry clears more of this small – and now falling – stock of unrecoverable deep arrears cases.”

See the full report at https://www.ukfinance.org.uk/data-and-research/data/household-finance-review

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