UK lenders are adopting a notably cautious outlook for the remainder of the year, as confidence in the mortgage market remains subdued. According to the Bank of England’s (BoE) latest quarterly credit conditions survey, there is little sign that demand for new mortgages will pick up any time soon. The findings reveal that despite some stability in lending volumes, most financial institutions do not expect an increase in demand for house purchase loans before the end of the year. This cautious sentiment comes as expectations for another interest rate cut in 2025 continue to fade, largely due to ongoing inflationary pressures and economic uncertainty.
The BoE’s survey, which gathers insights from major banks and building societies across the country, offers a snapshot of current market confidence. In its latest report, lenders confirmed that demand for secured lending on house purchases remained largely unchanged during the third quarter of 2025. They also predicted that this trend will continue into the fourth quarter, indicating a flat trajectory for the housing market rather than the rebound some were hoping for.
While new mortgage applications appear stagnant, remortgaging activity has seen a noticeable uptick. The survey highlighted that more homeowners are opting to remortgage their existing properties to secure better interest rates or protect themselves from potential cost increases in the near future. Lenders anticipate this pattern to continue into the final months of the year, especially as households prepare for financial pressures during the winter season.
The timing of this survey coincides with growing speculation about the Bank of England’s monetary policy direction. Inflation remains above the Bank’s 2% target, coming in at 3.8% in August, which has made policymakers reluctant to lower interest rates. The BoE chose to hold its base rate at 4% during its September meeting, and economists expect a similar decision when it meets again on 6 November. This decision reflects a broader effort by the Bank to balance inflation control with the need to maintain economic stability.
Maintaining higher interest rates has been a double-edged sword for the economy. On one hand, it has helped prevent inflation from spiralling further, but on the other, it has also slowed borrowing activity and dampened consumer spending. This has placed both households and businesses in a cautious position, with many delaying large financial commitments such as property purchases or investments.
Recent data from the Office for National Statistics (ONS) underscores the fragile state of the UK economy. Figures released last Thursday showed that GDP expanded by only 0.1% in August, following a contraction of 0.1% in July. While the growth aligns with expectations, it remains too weak to signal a strong recovery. Analysts suggest that persistent inflation, high borrowing costs, and cautious consumer spending are likely to keep economic growth muted for the foreseeable future.
Ruth Gregory, deputy chief UK economist at Capital Economics, weighed in on the matter, noting that the current conditions are unlikely to push the Bank of England toward another rate cut this year. “With inflation still high and rising, we doubt the soft GDP news will tempt the Bank of England to cut interest rates again this year,” she stated. Gregory’s view reflects a widely shared belief that the Bank will maintain a restrictive stance until there is clear evidence of easing inflationary pressures.
The BoE’s policies have a direct influence on the rates offered by lenders, which means that any change in monetary policy has immediate effects on the housing market. Higher base rates translate to more expensive mortgage products, which in turn discourage potential buyers from entering the market. While savers have benefited from improved returns, the cost of borrowing remains a significant barrier for aspiring homeowners and those looking to refinance.
Recent data from Moneyfacts supports this observation, showing that average mortgage rates have risen for the first time since February. Although the increase was modest, it marked a reversal in the downward trend seen earlier in the year. For many borrowers, this has meant facing higher monthly repayments, while first-time buyers continue to grapple with strict affordability tests and high property prices.
Affordability challenges remain one of the key issues affecting housing demand. Despite some stability in wages, the rising cost of living and persistent inflation have eroded disposable incomes. For first-time buyers, the combination of elevated mortgage rates and limited housing supply has made it even more difficult to get onto the property ladder. Many have chosen to delay buying or to continue renting until conditions improve.
The Royal Institution of Chartered Surveyors (RICS) recently reported ongoing weakness in housing demand across the UK. Its latest market survey revealed that buyer enquiries have continued to fall, particularly in regions where property prices remain high relative to incomes. Survey respondents also expressed concerns about potential new taxes or property market measures that might be announced in the upcoming autumn budget. This uncertainty has made both buyers and sellers more hesitant, leading to slower transaction volumes.
While the residential purchase market remains sluggish, remortgaging continues to provide a small but important source of activity for lenders. Many homeowners are choosing to switch to longer fixed-rate deals to secure more predictable monthly payments. This cautious financial planning suggests that borrowers are focusing more on long-term stability rather than short-term gains, particularly as economic uncertainty persists.
Beyond the mortgage market, the Bank of England’s survey also examined consumer credit trends. Interestingly, lenders reported that the average interest-free period on credit cards—both for balance transfers and new purchases—has lengthened in recent months. This shift reflects a competitive effort by lenders to attract borrowers ahead of the festive season. However, it also indicates that households may increasingly rely on credit to manage rising expenses as living costs continue to climb.
At the same time, the BoE cautioned that credit card defaults are expected to increase in the final quarter of the year. Lenders anticipate that more consumers will struggle to keep up with payments due to persistent financial pressures. This could signal a growing risk of household debt problems as the effects of high interest rates filter through to consumer budgets.
Overall, the Bank of England’s findings suggest that the lending market is entering a period of stagnation. Mortgage demand shows no clear sign of recovery, and consumer borrowing remains fragile despite a temporary rise in credit activity. The broader picture points to an economy still adjusting to tighter monetary conditions and ongoing uncertainty about inflation and fiscal policy.
As 2025 approaches, both lenders and borrowers appear to be prioritising stability over expansion. With limited expectations for rate cuts and ongoing affordability challenges, the housing market may continue to experience subdued activity. Much will depend on the Bank of England’s next policy decisions and the outcome of the government’s upcoming autumn budget, both of which could shape the property market’s direction in the months ahead.
In the meantime, the prevailing sentiment among lenders remains one of caution. While remortgage demand offers a small silver lining, the broader market continues to struggle with affordability constraints, high borrowing costs, and economic unease. Until inflation subsides and confidence returns, the mortgage landscape is likely to remain steady but subdued—a reflection of a market waiting for clearer signs of recovery.
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