The Financial Conduct Authority (FCA) has published its mortgage lending statistics for Q1 2025, showing the value of gross mortgage advances increased by 12.8% from the previous quarter to £77.6 billion.
This is up 50.4% compared to the same period a year earlier and marks the highest level of new advances since the ill-fated mini budget in Q4 2022, which saw interest rates soar and market demand weaken.
“The lowering of interest rates and improved buyer confidence will have contributed to this momentum in lending activity somewhat, but the changes to stamp duty that saw bills rise substantially overnight would no doubt have been the biggest driver,” said Holly Tomlinson, Financial Planner at Quilter.
“This is reflected in the value of new mortgage commitments, which indicate future lending agreements, which fell by 1.5% from the previous quarter to £68.2 billion, though remained 13.5% higher than a year earlier,” she said.
Tomlinson noted that the share of mortgage advances with loan-to-value (LTV) ratios exceeding 90% rose to 6.7%, the highest since 2008, reflecting increased risk-taking as lenders seek to attract buyers with smaller deposits.
“While this may once have been cause for concern, the strict lending criteria and stress testing rules in place today mean even in the volatile interest rate environments, customers should still be able to afford their mortgages,” she said.
“Conversely, remortgaging activity fell to 21.3%, down 2.2% on the previous quarter and 10.5% lower than a year prior. This is likely due to a combination of homeowners who already committed to deals during the earlier rate hiking cycle, but also people now holding out in hopes of lower rates in the near future before locking in a new deal.”
Looking forward
The stamp duty changes put wind in the sales of the market for a while, but looking ahead, market confidence and subsequent mortgage lending will likely hinge on the timing and pace of interest rate cuts, as well as the outlook for the jobs market, said Tomlinson.
“In response to the increase to employer national insurance contributions, some businesses are having to scale back hiring and are even cutting their workforces.
“This morning’s data showed payrolled employee numbers fell by a staggering 274,000 year on year according to early estimates for May, and should this continue, affordability will be stretched even further, confidence will diminish and mortgage lending would likely fall as a result.”
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