UK Mortgage Demand: Growth Ahead But Plateau Looms

The UK mortgage market is poised for modest growth in 2025, driven by falling interest rates, improving affordability, and a surge in remortgaging activity. However, a confluence of economic and regulatory challenges threatens to cap momentum, leaving lenders bracing for a potential plateau in demand. While forecasts project a 3.1% rise in net mortgage lending this year—more than double 2024’s pace—experts caution that structural headwinds could limit further expansion by 2026.

Driving the Rally: Rates, Remortgaging, and Confidence
The recovery is underpinned by a gradual easing of borrowing costs. The Bank of England’s base rate is expected to drop from 4.75% to 3.75% by year-end, with lenders like HSBC and Halifax already slashing fixed and variable mortgage rates. For instance, HSBC reduced its standard variable rate to 6.74% in March—the lowest since early 2023—while Halifax cut fixed remortgage rates by up to 0.31%. These moves have spurred refinancing activity, with remortgaging volumes projected to jump 30% to £76 billion in 2025.

The rise in remortgaging is critical. Over 1 million homeowners face expiring fixed-rate deals by 2026, creating urgency to lock in lower rates before transitioning to costly standard variable rates (currently averaging 7.99%). Meanwhile, first-time buyers and home movers are benefiting from relaxed affordability criteria. Lenders like Halifax have increased borrowing limits for households with £75,000 incomes by 13% since late 2024, while HSBC expanded access for international applicants to 95% loan-to-value mortgages—a 17-year high.

The Plateau: Risks to Sustained Growth
Despite these positives, a plateau appears inevitable. Key concerns include:
1. Inflation Lingering: Persistent services-sector inflation could delay further base rate cuts, keeping mortgage costs higher than anticipated.
2. Affordability Gaps: While average UK house prices hit a record £298,083 in early 2025, affordability remains strained. Annual price growth of just 0–3% (per Halifax) is modest compared to income growth, but high borrowing costs still deter many buyers.
3. Regulatory Pressure: Stricter stress tests for buy-to-let mortgages and affordability checks for high-LTV loans could curb demand in niche segments.
4. Geopolitical Uncertainty: EY notes that tax reforms and global trade tensions could dampen consumer and business confidence, slowing housing market activity.

Lenders Navigate a Delicate Balance
Banks are adapting strategically. HSBC’s focus on international borrowers and Halifax’s relaxation of affordability rules reflect efforts to capture underserved markets. Yet both acknowledge risks. Halifax’s Amanda Bryden warns that post-fixed-rate refinancing could strain budgets for millions of households, while HSBC’s Oli O’Donoghue admits that geopolitical risks “cloud the outlook.”

Investment Implications
For investors, the market presents a mixed picture. Mortgage-backed securities and lender stocks (e.g., HSBC, Lloyds) may benefit from short-term refinancing booms, but long-term growth is constrained. The EY forecast of 3.2% net growth in 2026 and 3.6% by 2027 suggests only marginal improvements, not exponential expansion.

Conclusion: Growth, but Not a Boom
The UK mortgage market will grow in 2025, driven by lower rates and pent-up demand. Yet a plateau is likely as affordability bottlenecks and external risks bite. With gross lending expected to peak at £260 billion—up 11% from 2024—the sector’s recovery is real but tempered. Investors should prioritize lenders with strong capital buffers and diversified revenue streams, while preparing for a slower trajectory ahead. As Martina Keane of EY notes, “The path to sustained growth is narrow—geopolitical and fiscal factors could easily tip it sideways.”

In this environment, cautious optimism prevails. The mortgage market’s rebound is underway, but the finish line remains distant.