Mortgage lending activity returned to growth in the third quarter, following a slower second quarter caused by changes to Stamp Duty regulation, UK Finance has found.

The banking and financial services association’s latest Household Finance Report revealed that lending is now around the stable levels seen in 2022, despite "material affordability challenges".

UK Finance also found that refinancing volumes jumped by 48% year-on-year to 557,000 loans, as more customers rolled off fixed-rate deals.

Despite this growth, the body said affordability remains tight, with first-time buyers still paying around 22% of gross household income on monthly mortgage payments. This is the highest share for nearly two decades.

The data comes as the Financial Conduct Authority’s (FCA) recent Mortgage Rule Review opened debate as to whether lending rules should be altered to support wider homeownership.

UK Finance stated that while the current rules have helped keep arrears low, they have also limited access for some groups. It added that the regulator’s review raises important questions about how rules could be adapted to widen access responsibly.

Managing director for personal finance at UK Finance, Eric Leenders, commented: "Mortgage lending returned to growth in the third quarter after a quieter start to the year, while refinancing also increased as more customers rolled off fixed rate deals.

"Affordability remains tight, but recent regulatory adjustments are helping widen access at the margins, and the FCA’s review raises important questions about how rules could be adapted to support underserved groups such as the self-employed."

UK Finance also found that savings continued to grow in Q3 but at a slower rate, with deposits in notice accounts and cash ISAs increasing by 10% or more year-on-year.

Leenders added: "Savings growth has moderated but remains strong by historic standards, with households continuing to build precautionary buffers against an uncertain economic backdrop ahead of the Autumn Budget."

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