Lending Conditions: A more flexible market

Lenders are showing more willingness to take on risk, with many now offering 95% loan-to-value (LTV) mortgages on new build properties. This is a significant development, particularly for first-time buyers struggling to save large deposits. Additionally, industry rumours suggest that more lenders will soon follow, expanding options for those looking to get on the property ladder.

Lower unemployment rates and a forecasted increase in house prices indicate stability in the market. For buyers, this means now could be a good time to secure a mortgage before property values rise further. However, affordability remains a concern, especially as interest rates and inflation continue to impact borrowing costs.

The Bank of England’s Balancing Act: Inflation Vs Employment

The Bank of England (BoE) is facing a complex challenge—controlling inflation while ensuring economic stability.

• Inflation is on the rise: The BoE expects inflation to reach 3.7% by Q3 2024, well above its 2% target. This increase is primarily due to rising energy and food prices. If inflation continues to climb beyond expectations, planned interest rate cuts could be delayed—or even reversed.
• Historical trends suggest caution: Since the BoE’s Monetary Policy Committee (MPC) was established in 1997, there have only been three occasions when interest rates were cut while core inflation remained above 2%. Typically, when core inflation is 0.5 percentage points above the target, the BoE opts to increase rates rather than cut them.
• Employment concerns: While wage growth remains strong, businesses are becoming more cautious about hiring due to rising National Insurance Contributions (NICs) and minimum wage increases from April. This could slow economic activity but may also help curb inflation by reducing consumer spending power.

The big question remains: Are the BoE’s assumptions about wage growth and inflation correct? If inflation persists at high levels, the outlook for interest rate cuts could shift dramatically.

Housing Market: Strong but facing key challenges

Despite economic uncertainties, the housing market has remained resilient. Recent data shows:

• Net mortgage lending rose by £4.2bn, the highest increase since September 2022.
• Housing transactions dipped slightly from 96,505 in December to 95,110 in January. This could indicate an increase in mortgage-backed purchases or rising house prices.
• Mortgage approvals fell slightly from 66,505 in December to 66,189 in January, suggesting that housing market activity may not pick up as quickly as expected ahead of stamp duty changes.

Looking ahead, concerns around employment and higher-for-longer interest rates could dampen demand, while upcoming stamp duty reforms from April 2025 may further impact transaction levels.

Stamp Duty Changes: First Time Buyers to pay more

A major change set for April 2025 will significantly affect first-time buyers. According to Skipton Group’s Affordability Index:

• The reforms will add £6,250 in stamp duty costs for a first-time buyer purchasing a £425,000 home.
• The proportion of local authority areas in England where first-time buyers will need to pay stamp duty is set to rise from 8.4% in Q4 2024 to 32% in Q2 2025.
• Scotland remains the most affordable region for first-time buyers, whereas Wales ranks as the least affordable.
• Nearly 40% of first-time buyers currently spend over 45% of their income on essential housing costs, making affordability a growing concern.

These changes mean that first-time buyers should act now if they want to avoid increased costs in the future.

What this means for buyers and investors?

With shifting market conditions, taking a strategic approach is essential:

• First-time buyers should consider securing a mortgage before April 2025 to avoid additional stamp duty costs.
• Homeowners and investors should monitor interest rate trends, as rate cuts may not come as soon as initially expected.
• Buyers with lower deposits can explore 95% LTV mortgage options, especially for new builds, as more lenders begin to offer these products.
• Those looking to remortgage should review their options early, particularly as lenders continue to adjust their criteria in response to economic shifts.

Final Thoughts: What’s next for the mortgage market?

The housing market remains strong, but the broader economic landscape will play a significant role in shaping the months ahead. Inflation risks, employment concerns, and policy changes are all key factors to watch. Whether you’re purchasing your first home, moving, or investing, understanding these dynamics will help you make informed financial decisions.

If you need expert advice on securing the best mortgage deal in today’s market, get in touch with us today. Our team is here to guide you through your options and ensure you make the right choice.

Sources: Office for National Statistics, Bank of England, Capital Economics, Skipton Group

Skipton: https://www.skiptongroup.com/affordability-index/

Bank of England: https://www.bankofengland.co.uk/speech/2025/march/catherine-l-mann-keynote-lecture-reserve-bank-of-new-zealand-research-conference

ONS: Office for National Statistics, 2025