UK Mortgage Lending Set to Double as Interest Rates Fall in 2025

British mortgage lending growth is projected to surge beyond 3.1 per cent in 2025, marking a significant increase from the 1.5 per cent growth witnessed in 2024, according to the latest EY Item Club forecast. The upward trajectory is expected to continue into 2026, reaching 3.2 per cent.

The Bank of England’s recent decision to reduce interest rates by 25 basis points to 4.5 per cent has catalysed this anticipated growth. Market analysts predict two to three additional quarter-point reductions throughout the year, fostering an environment conducive to increased borrowing.

Property market activity has already shown promising signs, with Rightmove reporting transaction levels 15 per cent above normal, primarily driven by banks’ competitive mortgage rate offerings. The combination of robust income growth and stable employment figures continues to bolster mortgage demand.

Martina Keane, EY UK and Ireland financial services leader, offers a measured perspective: “The UK’s gradual economic recovery is strengthening confidence and translating into more appetite to borrow from UK banks. Looking to the year ahead, if interest rates are cut further as expected, borrowing costs should fall, the capacity for household spending will grow and stronger levels of mortgage borrowing should return after two years of little to no growth.”

Despite these positive indicators, economic headwinds persist. The implementation of a £25 billion increase in employers’ national insurance contributions from April has triggered a notable decline in business hiring intentions. The UK economy’s growth remains modest, with projections hovering just above 1 per cent for 2025.

The broader lending landscape shows promise, with total UK bank lending growth forecast to climb to 3.7 per cent this year, accelerating to 4.1 per cent in 2026. Consumer credit growth is expected to moderate slightly to 5.8 per cent in 2025, down from the previous year’s peak of 6.4 per cent, which marked the strongest increase since 2017.