UK Mortgage Lending Rebounds as High Loan-to-Value Borrowing Reaches 18-Year Peak

LONDON — UK mortgage lending recovered in the second quarter even as a larger share of new borrowing moved into high loan-to-value territory, according to figures released Tuesday by the Bank of England. Gross mortgage advances rose 11.1% from the first quarter to £77.4 billion and were 31.7% higher than a year earlier, showing how sharply activity revived after a weak start to 2026.

The rebound did not erase the affordability pressures running through the housing market. Loans above 90% of a property's value accounted for 8.4% of gross advances, the highest share since the second quarter of 2008. Lending above 75% loan-to-value reached 47.5%, its highest proportion since the fourth quarter of 2007. Those figures suggest more buyers are entering transactions with thinner equity cushions.

High loan-to-value lending is not automatically evidence of poor underwriting. It can reflect first-time buyers who have sufficient income to meet monthly payments but have struggled to build a large deposit while rents and living costs remain elevated. The risk is that a small decline in property prices can leave borrowers with little equity, making refinancing or moving more difficult if their circumstances change.

The Bank's data also show a shift toward refinancing. Owner-occupier remortgages represented 31.2% of gross advances, up 3.1 percentage points from the previous quarter and the highest share since early 2024. By contrast, advances for owner-occupied house purchases slipped to 56.1% of the total. The pattern is consistent with existing borrowers returning to lenders as fixed-rate deals expire.

New mortgage commitments, which indicate lending agreed for the months ahead, rose 1.4% to £79.2 billion. That was only 1.3% above the level a year earlier, a much quieter increase than the jump in completed advances. The gap matters because commitments offer a forward-looking view and suggest the second-quarter surge should not be treated as proof of an uninterrupted acceleration.

The figures land before the Bank of England's September policy decision and during a period of uncertainty about borrowing costs. The Bank's July Monetary Policy Report described housing activity as weak after mortgage approvals for purchases fell sharply in May and remained broadly flat in June. Higher quoted rates and economic uncertainty were cited as important constraints on demand.

For London, the national numbers carry particular weight because high property values magnify every change in rates and deposits. A percentage-point move in financing costs can translate into a substantial monthly difference on a large loan. Buyers also face wide variations between boroughs and property types, so a national recovery in advances may coexist with cautious pricing and long sales periods in specific parts of the capital.

Arrears data offered a more encouraging signal. Outstanding mortgage balances in arrears fell 1.9% from the previous quarter to £19.7 billion, the lowest level since the third quarter of 2023. The share of all mortgage balances in arrears held at 1.1%, while new possessions declined 7.1% to 2,058. The improvement does not remove household stress, but it indicates that distress did not rise alongside lending volumes in the quarter.

Buy-to-let lending accounted for 8% of advances, its lowest share since the third quarter of 2024. That continues a longer adjustment for landlords confronting financing costs, taxation, regulation and uneven rental yields. A smaller buy-to-let share may give owner-occupiers more room in some markets, though it can also constrain the supply of rental homes if landlords leave faster than new housing is built.

The second-quarter picture is therefore a recovery with a caution label. Lending volumes strengthened and arrears eased, but buyers are using higher leverage and the pipeline of new commitments is growing only modestly. Investors, banks and households should watch the next mortgage-approval data, quoted rates and the September policy decision together. Deposit requirements, wage growth and refinancing offers will be equally important in determining whether that recovery reaches more households. No single release settles the direction of the housing market, but Tuesday's figures show where its financial pressure points are moving.