Mortgage advances see biggest increase since 2020, up 36.9%: Bank of England – Mortgage Strategy

The Bank of England revealed that total mortgage advances in the third quarter increased by 36.9% compared with the previous quarter, reaching 80.4 billion pounds, which was the largest increase in new advances since the third quarter of 2020.

Advances also increased by 22.7% compared with the same period in 2024, the Bank of England showed.

The Bank of England also revealed that the outstanding value of all residential mortgages increased by 0.9% month-on-month to 1,733.7 billion pounds, an increase of 2.9% on the same period last year.

The value of new mortgage commitments increased by 1.6% quarter-on-quarter to £79.4 billion, the highest since the third quarter of 2022, and a year-on-year increase of 20.3%.

The proportion of total mortgage loans with a loan-to-value (LTV) of more than 90% increased by 0.3 percentage points from the previous quarter to 7.4%, the highest proportion since the second quarter of 2008, and an increase of 0.8 percentage points from the same period last year.

The proportion of loans extended to high loan-to-income (LTI) borrowers increased by 3.3 percentage points from the previous quarter to 44.7%.

This was the largest increase since the third quarter of 2020, but was still 0.6 percentage points below the same period last year.

At the same time, the proportion of total mortgage loans for owner-occupied housing increased by 2.5 percentage points from the previous quarter to 58.6%, but it was still down by 5.8 percentage points from the same period last year.

The proportion of total owner-occupied mortgage prepayments fell by 0.4 percentage points from the previous quarter to 28.6%, but was still 5.8 percentage points higher than 12 months ago.

The outstanding mortgage balance in arrears fell 2.9% month-on-month to 20.6 billion pounds, down 5.8% year-on-year.

Delinquent mortgage loan balances as a proportion of all outstanding mortgage loan balances remained unchanged from the previous quarter at 1.2%, down 0.1 percentage points from the same period last year.

The proportion of new delinquent cases in total delinquent balances fell by 0.1 percentage points from the previous quarter to 8.8%, the lowest level since the first quarter of 2022, and a decrease of 0.9 percentage points from 12 months ago.

Ian Futcher, financial planner at Quilter, said: “The latest figures show a significant rebound in mortgage lending, but it’s important to remember this comes after a very slow year for the housing market. High interest rates and affordability pressures have kept many would-be buyers on the sidelines.”

“Total mortgage advances rose nearly 37% from the previous quarter and are now nearly a quarter higher than a year ago, while new mortgage commitments reached their highest level since late 2022.”

“This suggests growing confidence as mortgage rates edge down and people move forward with plans they may have put on hold.”

“Even so, data shows that home ownership remains difficult for those trying to buy. The share of loans with loan-to-value ratios above 90 per cent has risen to levels not seen since before the financial crisis, with more borrowers seeking to supplement their incomes to afford a home. This reflects the reality of high house prices and the lingering impact of rising borrowing costs.”

“There is some reassuring news, with mortgage arrears remaining very low and down on last year, suggesting that households who already have a mortgage are largely managing their repayments despite the pressures they are facing.”

“Overall, the market is improving from a weak base, but affordability challenges remain front and center, particularly for first-time buyers. Continued reductions in mortgage rates will be key to ensuring the recovery is sustainable, rather than relying on people experiencing greater financial stress.”

Commenting on the figures, Peter Stimson, head of mortgages at MPowered Mortgages, said the bank’s data “captures a 4K Ultra HD snapshot of the mortgage market, not what it is today”.

“Although these figures show mortgages completed in the third quarter of the year, the majority of these loans were applied for over the summer – before the pre-budget paralysis pressed the pause button on much of the market.”

“Demand for home purchase mortgages has plummeted in the months leading up to the Budget as buyers are alarmed by rumors of huge tax hikes on buying, selling or even just owning a property.”

“While remortgages have remained fairly stable, the chilling effect of the budget has weighed on lending – which will be reflected in the next release of the central bank’s data.”

“On the surface, the third-quarter numbers look great — the strongest numbers in five years — but it could also be a high-water mark.”

“Looking ahead, the market should start 2026 strongly. The Bank of England will almost certainly cut the benchmark interest rate to below 4% over Christmas and may cut rates again to 3.5% in February, so demand should rebound.”

“Most lenders have already priced in these base rate reductions and following the Budget we have seen some lenders slash the rates they offer customers.”

“While further significant interest rate cuts are unlikely and we are near the bottom of the interest rate cycle, competition among lenders is likely to become fierce as they compete for a share of the recovering market.”