UK Mortgage Demand Drops Ahead of November Budget, Survey Shows

Demand for mortgages in the UK dropped in the period leading up to the November 2025 budget and is expected to fall further in the coming months, according to a Bank of England survey. The decline was attributed to uncertainty over property tax changes announced by Chancellor of the Exchequer Rachel Reeves. Lenders anticipate continued weak demand in the first quarter of 2026.

The Bank of England's quarterly credit conditions survey revealed that fewer individuals took out loans to purchase homes around the time of the fiscal announcement. The reading marked its lowest level in two years. The data, collected between November 10 and December 3, coincided with high levels of speculation about tax policy changes.

Despite the drop in mortgage demand, there was little evidence of financial distress among homeowners. The rate of loan defaults fell at the end of 2025 and is expected to continue declining. Lenders also reported that mortgage costs should fall, easing financial conditions for homeowners.

The UK economy grew by 0.3% in November 2025, exceeding expectations and offering a boost to Reeves. Much of the growth was attributed to the recovery of the Jaguar Land Rover manufacturing sector following a cyberattack earlier in the year. However, uncertainty around the budget impacted real estate activity and consumer-facing businesses.

What Factors Led to the Drop in Mortgage Demand?

The drop in mortgage demand was largely influenced by the uncertainty surrounding tax changes introduced by Rachel Reeves in her November 2025 budget. The budget included a surcharge on homes valued above £2 million. This created hesitation among potential buyers and property owners, leading to a reduction in loan activity.

The Bank of England's survey indicated that speculation about the budget distorted market behavior in the weeks preceding the announcement. This uncertainty led to delayed or avoided property transactions, contributing to the decline in mortgage applications.

What Does the Data Reveal About the Housing Market and Financial Conditions?

While mortgage demand has fallen, the housing market showed some signs of stabilization in December 2025. A survey by the Royal Institution of Chartered Surveyors (RICS) found that estate agents became more optimistic after the budget.

Expectations for housing sales and prices improved in the three months following the budget announcement. RICS noted that the market remained in a "prolonged soft patch," but there were indications of a shift in sentiment.

Financial conditions for homeowners also improved. The Bank of England reported that mortgage pricing was easing, with spreads on secured lending narrowing in the fourth quarter of 2025. This trend is expected to continue into early 2026, providing some relief to households.

What Are Analysts Watching for Next in the UK Housing Market?

Analysts are closely watching whether the easing of borrowing costs will drive a broader recovery in the housing market. Rob Wood, chief UK economist at Pantheon Macroeconomics, noted that budget uncertainty temporarily slowed economic growth but has now faded.

Key indicators to monitor include changes in mortgage demand, housing price trends, and further developments in consumer confidence. RICS highlighted that the key test for 2026 will be whether interest rates continue to decline.

Additionally, the recovery of the manufacturing sector and ongoing stability in the service industry will provide further insight into the health of the UK economy. The Bank of England's interest rate decisions and the government's cost-of-living initiatives will also influence the housing market's trajectory.