Mortgage Market Update – May 2025

While it was dubbed as “awful April” and our friends in the US did their best to live up to the billing, there were actually a number of positive stories in the mortgage and property world in the last month which I will focus on. Main headlines were – Lenders are relaxing affordability rules and offering larger loans with one lender going to 7 times income! Inflation was down to 2.6% with both Nationwide and Halifax reported house price rises. As if that wasn’t enough, we have also added a date for our next Webinar, please see this link to register. So for that and a lot more, we hope you enjoy our monthly update:

Market Update

Lenders Offer Larger Loans Of Up To 7 x Income!

The most attention grabbing headline of the month was from new lender April Mortgages, who are offering up to 7 x your income on their 10 & 15 year fixed rate products. As a new lender they are coming in with a very fresh approach of offering longer term fixed rates with far greater flexibility (such as no penalties if you make over payments or move home, and rates automatically reduce if your LTV – Loan To Value – decreases). There is also a quirk to their funding model which means they can be more liberal in this area than other lenders. As ever, the exact amount you will be offered will be down to your personal situation but it is great to see a new lender pushing the envelope.

This was actually a theme of the month as Halifax, Santander and NatWest made amendments to their affordability models which meant they were also more generous on the loans they are now offering (some small lenders also made some positive changes in this area). As a backdrop to this, the FCA is currently reviewing how much lenders can offer on a mortgage as 2 issues are constraining them:

1. Lending flow Rate
   • When the UK mortgage market moved to an ‘affordability’ model in 2014, the FCA put a limit on lenders offering more than 15% of new loans at more than 4.5 x income (this is the quirk April Mortgages wins on as the way they are funded which means they don’t have to abide by this rule. For now at least…)
2. Stress Rates
   • As part of the above, lenders don’t assess if you can afford the monthly payments now, they look at can you afford it if rates are higher. In 2014 when the UK Base rate was at 1%, it made complete sense to ‘stress’ loans at 5-6%. This was to account for when rates rise. However, today the Base rate is at 4.5% so lenders are having to stress at 8-9% to see if you can afford the loan at that level. Not even Liz Truss pushed rates that high! This rule is currently being reviewed as certainly in my view, that rule has served its purpose. A more logical base should be found and this is what the FCA are reviewing as to what it should be reduced too.

Its great to finally see some common sense in this area. I’m certainly not advocating for reckless lending, but where affordability is clearly established (such as looking at what you are paying in rent for example, or the new loan being less than your current outgoings – which suits movers and debt consolidation) surely we should take a more common sense approach rather than having arbitrary rules. This will always favour clients who earn more, and/or have modest outgoings, so expect to see more in this area once the FCA completes its review

Inflation Falls

We had a lower than expected read on Inflation in March with a drop down to 2.6%. Inflation falling will always be welcomed after what we have experienced in recent years, and this is one of the main drivers from the Bank of England on where they move interest rates too (their target is to keep inflation at 2%). In a normal run of events, falling inflation would open the door to lower interest rates. However, these are not normal times! You will have been living under a rock if you haven’t seen the turmoil that US led Tariffs have caused, which if pushed on with, could mean lower interest rates much sooner if we head for a global recession. So you would expect rates to come down?

As ever, it’s never that simple with mortgages and I was quoted in this article which explores this point in more detail. In a nutshell, we are seeing slightly lower interest rates on mortgage products and some lenders are now offering sub 4% fixed rates if you have a large deposit and simple situation. However, Inflation is likely to spike quite heavily in April, hence the dubbed ‘awful April’ as energy prices will go up and many firms may have to push on higher costs to consumers due to the new National Insurance tax rate which has been saddled on them. Equally, everything is just so volatile at the moment I feel lenders are holding back until things become clearer.

Gladly, we seem to be ending the month with more common sense on Tariff’s and Mortgage rates creeping down. At the time of writing, money markets (see below) have priced in up to 3 cuts to the Base Rate this year, meaning we could end the year at 3.75%, with one further cut expected next year. As I say, things are very volatile at the moment and this is an area we are watching extremely closely. With the Bank of England meeting on the 8th May, the picture may be much clearer in my next update, at least I hope it is!

House Prices Rise Again

It’s always a mixed bag when we see house prices rise. Both Nationwide and Halifax reported annual house price inflation at 3.9% and 2.8% respectively at the end of Q1.

If you own already, that is great news! It also allows lenders to release more money that they have to put aside to account for potential losses, meaning more money is then available to offer out on new loans. That can create a positive feedback loop that reinforces house price rises as lenders offer more money for new loans and so on, which drives up prices further.

Which is the note of caution I would offer that if you don’t own currently, that will start to eat away at your budget or could even price you out entirely of your ideal home/area if left too long. As I mention in detail above, there is a great opportunity to buy now as lenders are starting to loosen the purse strings as interest rates are coming down. So 2025 could prove the year to finally make that house move you have been planning as these increases in prices are set to stay for the foreseeable future.

Money Market & Mortgage Rates