If you’re looking to buy a house in the future, take note – the UK mortgage market is undergoing major changes. The Financial Conduct Authority (FCA) have signaled a major shift in how lenders assess affordability and it could have far-reaching consequences for first-time buyers, homeowners, and the broader economy.
How have UK Mortgage Rules Changed?
The FCA is now encouraging lenders to offer larger mortgages to a broader range of buyers. This includes loosening the so-called “stress tests” — guidelines introduced after the 2008 financial crisis to ensure borrowers could still make payments if interest rates rose by up to 4%.
Critics of the stress tests have long argued that they excluded many otherwise capable buyers from the housing market. The FCA echoes that sentiment, claiming the tests may have been “unduly restricting access to otherwise affordable mortgages.”
Real-World Examples
Here’s how the new flexibility could play out:
- A couple earning £50,000 combined might now be able to borrow £210,000, up from £196,000: a £24,000 increase.
- Another household with a £64,000 combined income could access a £305,000 mortgage, compared to £284,000 previously, via a Santander five-year fixed deal [Santander Mortgages].
These adjustments may offer a lifeline to first-time buyers, potentially letting them secure larger or more competitive properties.
Mortgage Rates Falling
The lending environment is further shifting as banks begin to cut interest rates. Barclays became the first of the UK’s “big six” banks to lower rates below 4%, cutting by up to 0.38% on selected deals [Barclays Mortgages].
- Two and five-year fixed rates now sit around 4.11% and 4.12%, but some buyers with large deposits can now access deals at 3.9%.
- Experts predict this could spark a mortgage price war, as more lenders respond to recent global economic volatility—particularly US trade tensions tied to Trump-era tariffs [BBC News]
Boom or Bust?
The debate is split. On the one hand, relaxed lending standards and cheaper rates could encourage more people to buy property, fuelling a housing boom. On the other, these same conditions resemble those that preceded the 2008 financial crisis.
While property prices are already up 3.9% year-on-year, there are concerns about whether buyers can genuinely afford these new borrowing levels especially as living costs rise. Household bills (including energy, broadband, and council tax) have jumped significantly since April, putting pressure on disposable incomes.
Broader Economic Worries
Alongside these mortgage shifts, the UK faces wider macroeconomic uncertainty:
- The UK’s GDP growth forecast is just 1% for 2024, a low figure suggesting sluggish recovery [ONS].
- Inflation remains sticky, and many people are reluctant to return to full-time employment with the unemployment rate at 4,4%, further slowing productivity.
These challenges limit the potential for economic growth to “bail out” new borrowers if financial pressures tighten again.
Is Buy-to-Let Still Worth It?
The rental market in the UK is still holding up well. Many landlords are finding that their properties are being snapped up quickly, which shows there’s still strong demand from renters. This is partly because more people are struggling to buy homes due to high house prices and tougher mortgage rules, so they’re renting for longer.
That said, becoming a landlord isn’t as straightforward as it used to be. Property prices have gone up, mortgage rates are higher, and some of the tax perks landlords used to enjoy have been reduced. On top of that, new rules around things like energy efficiency and tenants’ rights mean landlords have more responsibilities and costs to consider.
So, is buy-to-let still a good bet? It can be – especially for experienced landlords or those who already own property. In certain areas with high rental demand, it’s still possible to get a decent return. But for first-time or smaller investors, it’s important to go in with your eyes open. You’ll need to do your homework, work out all the costs, and make sure the numbers add up before taking the plunge.
Is Now a Good Time to Invest in Property?
So, is now the right time to get on the property ladder?
Possibly – but with caution. While the FCA’s changes make borrowing easier, affordability remains an issue for many. Mortgage adviser Peter Moston notes we could be headed toward a “price war” in lending, but that won’t solve long-term affordability if wages don’t keep up.
Ultimately, the UK property market appears set for continued, if modest, growth. Buyers should be strategic, work closely with brokers, and prepare for volatility in both interest rates and economic indicators.
Buying UK property can be a complex procedure due to changing mortgage rules and interest rates fluctuations – but you don’t need to tackle it on your own. At APW Group, we’ve been helping expats invest in property for over 30 years. We’ve put together an e-book, ‘The Expat Property Playbook’, to help you navigate the UK property market with confidence – follow the link to download it for free.
Alternatively, get in touch with us directly and we’ll set up an initial consultation with one of our property experts to discuss your needs.