UK Mortgage and Housing Market Update – September 2025
Key Highlights
- The Bank of England held its base rate steady at 4.00%, with expectations for potential further cuts later in the year amid balanced economic indicators.
- House prices displayed mixed monthly movements but maintained modest annual growth, reflecting cautious buyer sentiment ahead of the autumn budget.
- Mortgage approvals dipped slightly in August (latest available data), yet remain near multi-month highs, indicating sustained but tempered demand.
- Affordability rule changes have provided more flexibility, supporting first-time buyers and remortgage activity.
Interest Rate Developments
The Bank of England maintained its base rate at 4.00% following the Monetary Policy Committee’s decision on September 18, 2025, after a 0.25% cut in August. The vote was 7-2 to hold, with policymakers citing persistent inflation concerns balanced against economic growth needs. Mortgage rates have continued to ease slightly, with the average two-year fixed rate (at 75% loan-to-value) around 4.20% by month’s end. Lenders are offering greater flexibility, particularly for first-time buyers, fostering a more accessible market environment.
House Price Trends
September reports on house prices showed varied dynamics, with a focus on stabilization amid budget uncertainties. Nationwide’s House Price Index indicated a 0.3% month-on-month increase, with annual growth edging up to 2.2% (from 2.1% in August). The average UK home price rose to approximately £271,995, supported by lower borrowing costs despite affordability pressures.
Halifax, however, reported a -0.3% month-on-month decline—the first drop in three months—with annual growth slowing to 1.3% (down from 2.0% in August), bringing the average property value to £298,184. This variation highlights methodological differences, but the market overall shows resilience in a subdued summer period, aided by rate stability and affordability adjustments.
Forecasts for 2025 have been refined, with expected UK house price growth now in the range of 1-4%, influenced by gradual rate reductions and economic outlook.
Mortgage Approvals and Lending Activity
Bank of England data for August 2025 revealed net mortgage approvals for house purchases falling slightly to 64,680—a decrease of about 500 from July’s six-month high—signaling a minor slowdown amid seasonal and budget-related caution. This level still aligns with pre-pandemic norms, suggesting ongoing underlying demand.
Buy-to-let (BTL) lending showed strength, with the share of advances rising to 9.2% in Q2 2025, up 1.2% from Q1, marking the highest since early 2023. Recent affordability rule relaxations have boosted borrowing capacity by up to 20% in some cases, especially for first-time buyers, driving renewed interest. However, new mortgage commitments saw a minor dip, reflecting measured borrower confidence.
Market Sentiment and Outlook
September’s rate hold has contributed to a broadly stable but cautious market, with easing costs creating opportunities for buyers despite a typical seasonal dip. Experts foresee steady growth in lending activity through 2025, as further inflation cooling may prompt additional rate cuts. While high costs and budget uncertainties pose challenges, the outlook is positive, with prospects for heightened activity post-autumn.
