Insights ¦ Household Finance Review – Q3 2025

Key Takeaways

• Despite household sentiment remaining weak due to economic uncertainties, retail spending and borrowing demonstrated growth in Q3 2025.
• Growth in retail store spending is driven by gradual wage increases helping household disposable income recover post the cost-of-living crisis.
• House purchase mortgage lending resumed growth in Q3, stabilising after initial disruptions caused by Stamp Duty adjustments earlier in the year.
• Affordability pressures remain high, but modest regulatory flexibility is supporting increased access to mortgage credit for some borrowers at the margins.
• The growth in mortgage refinancing activity after a slow first half underscores customers’ proactive approach to securing fixed rate deals as existing deals expire.
• Savings growth slowed but remained at decade highs, supported by improved real wage growth and heightened caution amid economic uncertainty.
• Mortgage arrears continue to decline and are now 14% below their early 2024 peak levels, indicating improving resilience among borrowers.
• UK economic growth remains subdued at 0.1% in Q3, with service output, construction, and manufacturing sectors exhibiting mixed performances.
• Consumer confidence, albeit fragile, shows signs of stable recovery in households’ financial outlook, despite ongoing negative perceptions of the wider economy.
• House purchase affordability remains very tight, with first-time buyers paying on average around 22.5% of gross household income to meet mortgage costs—levels unseen since before the GFC.
• Loan-to-income multiples at higher levels are rising, partly driven by longer-term lending options, despite regulatory constraints aimed at limiting overhype.
• Mortgage arrears and possessions are gradually decreasing but are expected to see a slight increase, mainly amongst older loans, reflecting a cautious industry recovery.

Key Statistics

• Retail spending volumes increased by 0.9% in Q3; value rose by 3.5%.
• UK GDP grew marginally by 0.1% in Q3 2025, slower than expected.
• Service sector growth was 0.2%, with government services leading at 0.3%.
• Mortgage arrears at over 2.5% of the total mortgage stock declined 4.2% from June to September.
• First-time buyers paid approximately 22.5% of gross income on average during Q4 2023, highest since the GFC.
• 557,000 mortgage refinancing loans in Q3, up 48% YoY, with product transfers accounting for 82%.
• Household deposits in notice accounts and cash ISAs increased by 10%+ in the quarter.
• Card balances carrying interest rose slightly, with interest-bearing balances exceeding 50% for the first time since March 2024.
• Mortgage possessions in the third quarter of 2025 increased by 41% compared with the same quarter last year.
• Overdraft balances remained at historically low levels, with no significant change through the quarter.
• Undrawn overdraft facilities were used minimally, indicating household financial stability.

Key Discussion Points

• The recovery in retail spending is occurring despite ongoing household sentiment challenges, supported by wage growth.
• Regulatory adjustments are facilitating wider access to mortgage lending without significantly risking market overheating.
• The return to growth in mortgage refinancing activity highlights customer appetite for fixed-rate options amidst rate fluctuations.
• Affordability remains a significant barrier, but recent regulatory relaxations are helping some underserved borrower segments.
• Growth at higher loan-to-income multiples is linked to longer-term lending strategies, enabled by market de-risking and regulatory allowances.
• The decline in mortgage arrears and possession rates indicates improving borrower resilience and lending standards.
• The overall UK economy faces continued moderation, with sectoral performances reflecting a mixed but cautious recovery climate.
• Consumer confidence remains fragile but shows signs of stabilisation, with households feeling slightly more optimistic about their personal finances.
• The slow but steady recovery in household savings reflects increased precautionary behaviour against lingering economic uncertainties.
• The tightening of affordability has not significantly alleviated over the past year, maintaining a challenging environment for first-time buyers.
• The industry continues to adapt through product innovation, such as fixed-rate mortgages and shared ownership options, although uptake remains limited.
• The outlook suggests cautious optimism, complemented by capacity to manage arrears and mortgage risk, but with an awareness of potential upward pressure on possessions.

Document Description

This article provides a comprehensive review of household financial activity in the third quarter of 2025, analysing key trends in consumer confidence, spending, borrowing, mortgage activity, and the broader economic context. It evaluates sectoral performances, regulatory influences, and the resilience of households amidst economic uncertainties, offering insights for senior managers and stakeholders in the financial services sector.