UK mortgage demand stays resilient as households absorb economic volatility

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UK mortgage resilience amid volatility

Highlights

Bank of England reports 66,000 new mortgage approvals and 51,000 switcher approvals in April, signalling firmer-than-expected UK mortgage demand.
Affordability rule changes and upcoming reforms are widening mortgage access, supporting market activity among marginal borrowers and the self-employed.
Despite a 25 percent rise in average two-year fixed rates through May, household cash savings have grown by £236 billion and real wages are up 6 percent, softening economic risks.

Mortgage activity remains firmer than expected

As reported by Financial Times, recent lending data and comments from market participants indicate that mortgage demand in the UK is holding up despite earlier concerns that higher rates would weaken the wider economy.

The Bank of England says lenders approved about 66,000 new mortgages for house purchases in April, alongside another 51,000 approvals for borrowers switching provider. Some economists question the strength of the figures, with Oxford Economics pointing to possible seasonal distortions and Capital Economics warning that a softer housing market may still be near.

Bank and broker commentary is more constructive. NatWest chief financial officer Katie Murray told investors last week that the bank's mortgage activity has been stronger than expected so far in the second quarter, while brokers say buyers remain cautious but continue to transact and major lenders including NatWest and HSBC are still competing actively for business.

Recent policy changes have also supported the market. Adjustments to affordability rules have made it easier for some marginal borrowers to qualify, and further reforms announced on Tuesday could widen access for groups such as the self-employed.

Consumer balance sheets soften the economic risk

The latest rise in mortgage rates appears more manageable than previous shocks. The average rate on a typical two-year fixed mortgage used by first-time buyers is roughly in line with levels seen in early 2025, even though it rose by about a quarter in the three months to May.

That increase remains far below the much steeper jump seen around former Prime Minister Liz Truss's 2022 mini-Budget. Since then, real wages have risen by roughly 6 per cent and households have accumulated an additional £236 billion in cash savings, according to official data, leaving total household deposits above total debts.

The trend matters beyond housing finance. Investors have marked down UK consumer-exposed companies this year on expectations that higher energy costs will squeeze spending, and FTSE Russell's index of domestically focused UK companies is down 3 per cent while the equivalent index of globally exposed UK companies is up 3 per cent. Even so, the resilience in mortgage demand suggests at least part of the consumer sector is better positioned to withstand persistent economic disruption than in earlier periods.

A BBB-rated mortgage loan backed by a Santa Ana retail center highlighted how credit agencies are weighing property cash-flow stability against refinance and rollover risks in a higher-rate environment. We previously reported that despite strong occupancy and solid debt-service coverage, concentrated lease expiries within the loan term can materially affect underwriting assumptions and reserve needs—an angle that complements today’s discussion of mortgage resilience amid still-restrictive borrowing conditions.

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