UK housing market revival resumes as mortgage costs ease
Martin Beck, Chief Economist | Economic Consulting and Analysis
Bank of England data show activity picking up despite Budget uncertainty
The revival in housing market activity resumed in September, according to the latest Bank of England data, showing little sign that Budget uncertainty is deterring buyers. Mortgage approvals rose to 65,944, more than offsetting August’s modest dip and marking a nine-month high. Net mortgage lending increased to £5.5bn, up from £4.3bn in August and the highest level in almost three and a half years, excluding the stamp duty-driven spike in March 2025 (Figure 1).
Figure 1. Mortgage approvals and net mortgage lending
Despite the volatility in gilt markets early in September, the average rate on new mortgages continued to edge down - at 4.19%, the lowest since January 2023. Even so, borrowing costs remain high by the standards of the past 15 years and look likely to stabilise around 4% for the time being. Meanwhile, rising house prices are offsetting the benefits of cheaper credit, leaving affordability under pressure. Annual growth in mortgage lending remained modest at 3.2%, lagging behind pay growth.
Unsecured borrowing continued to expand more rapidly than mortgage lending. Consumer credit rose by 7.3% year-on-year, driven by a sharp rise in credit card borrowing (10.8%, an 18-month high). Whether this signals greater confidence in spending or an increased reliance on debt to meet day-to-day costs remains uncertain.
The outlook for lending carries both opportunities and risks. The Bank of England looks poised to cut policy rates further – we think as soon as December if the Chancellor delivers a significant fiscal tightening in the upcoming Budget - which should help ease mortgage costs. Credit conditions have also loosened this year, and banks’ willingness to lend has risen to its highest since 2021, according to the BoE’s latest credit conditions survey.
However, fiscal policy remains a potential headwind. Any new property-related taxes could weigh on housing activity, while building societies have warned that possible cuts to the annual cash ISA allowance could constrain their capacity to fund mortgage lending. For now, the data suggest the housing market recovery is regaining momentum, but with fiscal uncertainty and stretched affordability still in play, confidence could prove fragile.
What it means for business
For sectors tied to housing and consumer credit, the message is one of cautious optimism. Easing mortgage rates and improving access to credit may support housing-related demand in areas such as construction, furniture, and household goods. But stretched affordability and slowing real wage growth mean a strong rebound in housing-driven spending looks unlikely.
Financial institutions may benefit from improved lending volumes and margins, though tighter capital and funding conditions could limit scope for more aggressive competition in mortgage pricing. Consumer-facing businesses should also remain alert to rising unsecured borrowing, which could signal that households are relying more on credit to maintain spending.
Our take
The latest lending data add to evidence that the UK housing market (and the broader economy) is finding its footing. Falling mortgage rates and a pick-up in approvals are encouraging signs. But with sentiment still weak and fiscal policy uncertainty looming, the recovery rests on uneven ground.
We expect modest growth in lending through the end of the year, with further momentum in early 2026 if the Bank of England cuts rates again as we anticipate in December. However, fiscal tightening in the Budget and any new taxes on property or savings could quickly test the market’s renewed confidence.
