Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Solutions. Read the original article for full details.

First-Time Buyers Face Highest Affordability Pressure Since 2008

First-time buyers (FTBs) are now spending 22.6% of their gross income on mortgage payments, according to UK Finance’s Q2 2026 Household Finance Review. This marks the highest affordability pressure for FTBs since the global financial crisis of 2008.

The report describes a mortgage market in tentative recovery, with underlying strength in purchasing demand. House purchase lending for the year through July was just under 1% lower than the same period last year.

UK Finance attributes the increased affordability pressure to a steep rise in swap rates following the outbreak of conflict in Iran, which led to fixed rate mortgage pricing rising by around 100 basis points. The report states that it is “impossible” to predict future mortgage pricing due to ongoing uncertainty, but suggests that new mortgage rates are unlikely to return to even the stretched levels seen before the conflict.

UK Finance has called on regulators to review mortgage lending rules, proposing an increase in the cap on high loan-to-income lending from 4.5 times income to five times income. The trade body argues this could increase borrowing capacity for creditworthy first-time buyers without materially increasing risk.

In the refinancing market, there were 529,750 transactions in Q2, with product transfers accounting for 81% of all activity. This growth comes ahead of a significant refinancing challenge in the second half of 2026, as around 900,000 residential mortgages are due to reach the end of their fixed rate periods. About half of these borrowers are coming off five-year fixed-rate deals taken out in 2021, when rates were at historic lows. UK Finance notes that many of these homeowners will have reduced their outstanding balances through capital repayments, which may help offset the impact of higher rates.

Mortgage arrears continued to fall in Q2, but at a slower pace than in previous years. At the end of the quarter, 86,340 mortgages were in arrears representing more than 2.5% of the outstanding balance, down 2% from March. Arrears levels are now just 8% above the historic low recorded in 2022. UK Finance suggests that the slower improvement reflects the market nearing normalised levels, rather than worsening economic conditions. Many remaining arrears cases relate to mortgages originated before lending standards were tightened in 2014.

There were 1,780 possession cases recorded in Q2, marking the first annual fall in three years, down 14% compared to the previous period.