“Annual income twenty pounds, annual expenditure nineteen pounds nineteen shillings and sixpence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” – Mr Micawber, from Charles Dickens’ David Copperfield.
This week’s quote is one about affordability – and you will see why in the deep dive.
Before we go into this week full throttle – Rod Turner and I are running another workshop on Thursday 3rd – Joint Ventures and Mergers and Acquisitions this time around, and it is sure to be a highly popular one – a whistle stop of the agenda:
Market dynamics, JV opportunities, and optimal legal structuring for property businesses. Learn the pros and cons of limited companies, share classes, shareholder agreements, and sustainable JV models. Dive into capital structuring, comparing debt vs equity, managing risk, and understanding personal guarantees. Gain insight into property M&A, from due diligence to asset vs share purchases. Apply concepts through two in-depth case studies: acquiring an asset-backed property company and navigating a distressed business sale. Understand strategic disposals, company wind-ups, and how to negotiate under pressure while maximising value.
There’s only a couple of tickets left – book now or forever regret your errors – book at http://bit.ly/pbwseven
Cracking on with Trumpwatch, then. I wrote that last week, soon enough a bluff would have to be called – and sure enough, as I slept after finishing last week’s output, it was. Airstrikes on Iran. The “biggest foreign-policy gamble of his presidency”. “Regime change” was floated – not ideal, given the West’s track record of regime change in the Middle East or anywhere near over the past 30 years, I am sure you would agree.
Hard to split the politics from the facts – but the leaked internal report claiming that things have only been set back 3 months is not ideal. I guess “you can’t bomb knowledge” (although the job adverts for “covert nuclear scientists required for “anonymous country”, warm weather, only those with 10+ years experience need apply” probably aren’t getting inundated with applications either). Congress wasn’t happy at not being consulted, of course – and the breaking of international law was mentioned, without anyone really being able to do anything about it anyway. Wash up, make friends, allow some retaliatory bombing, and everyone is friends again? Well, not again – just friends? Seems unlikely, doesn’t it? Not the final chapter here, I think we would all agree.
Gun deregulation by executive order – yep, God Bless America. Throw in the reaffirmed travel ban but efficient treatment for 1000 Afrikaner farmers from South Africa. The Supreme Court (here’s one I prepared earlier) overruled lower courts who were imposing injunctions on executive orders. Voted 6-3, how strange, when 6 are considered conservative and 3 considered liberal – who would have bet on that?
Long-term economic consequences of “Big, Beautiful Bill” (not Clinton) came up this week, suggesting trillions more debt would be piled onto younger generations. Yep, that’s accurate. Economically – inflation was a little hotter than expected (core month-on-month) and personal income unexpectedly fell. Not ideal, and the “R word” is being mentioned more and more by the commentators. The same people usually predict about 9 of the next 2 recessions, so let’s not get overexcited yet.
To the real time UK property market, intrepid ones. Chris Watkin is the Luke Littler of Estate and Lettings facts – Week 24 is this week’s 180. Listings printed 37.7k, no material change on last week’s 37.6k, but are still 5% higher than 2024 YTD and 7.7% higher than the pre-pandemic market. My “10% more stock than a normal market” ready reckoner is still just about close enough, but getting stretched. We are 15.9% ahead of the 9 year average, but that does include 2020 which pollutes the figures somewhat.
26,800 price reductions, 14% reduced in May, compared to last year’s 12.1%, April’s 13.4%, and the 5-year average of 10.6%. More stock, more reductions – absolutely and relatively. 32% more reductions than the 5 year average, if you take the difference between 14% and 10.6%. “25% more reduced properties than a normal market” also works as a ready reckoner. One in seven properties on the market are being reduced each month (so we are currently running at a little over ONE HUNDRED THOUSAND price reductions per month, to be clear!). Can’t find a deal? Have a word.
28.3k homes sold subject to contract. Healthy is still the watchword. SSTCs are up 8.2% year on year and 16% on 2017-19, and still nearly keeping pace with 2022 (which to this point was a very hot market indeed). We went into June with 756,675 homes on the market – as the market got stickier before the pandemic that number was c. 660k, a sellers’ market is more likely to be under 600k. At the end of May 2024, 694k were on the market. It’s a lumpy trend upwards in just May and with this amount of stock on the market, it will be continually hard for prices to surge forward in the coming months – the “flat” feeling will likely manifest in a steady market without much excitement as we head into “summer proper”. The first month which sees fewer on the market that isn’t November or December would be a tell that the glut of stock – provided at least in part by exiting landlords, the “never spoken about” truth of this current market – has reached its peak, but there’s no guarantee that we are there yet.
Chris also looked at the “success percentage” this week – and this stat will surprise you no doubt. The astute will notice that I often talk of the c. 1m – 1.2m homes that transact each year. Those are the ones we are most interested in, of course. However, how much is listed is also of interest of course – especially when it tells a story. Where has all this stock come from, for example? From landlords exiting is my main theory – which has some support from reporting from the portals over the past 12 months, of c. 20% of what’s being listed at some points being ex-rentals (gauged as stock that had been on those same portals for rent within the past 4 years), versus 7%-9% of all finance that is being advanced being for buy-to-let properties – I’d describe that as “compelling circumstantial evidence” at the very least.
However, I make very little of the fact that 1.6m+ homes are listed each year, in a typical year, and therefore there must be hundreds of thousands of homes being listed that do not transact. What happens to those? Well, in the main, they are just withdrawn from the market and those potential vendors do not move. If I tried to encapsulate what I believe is the major factor driving that, I’d blame overvaluation which is the cancer on the industry imposed by the corporates. Tell the vendor it is worth more than it is in order to get the instruction, then once in a lock-out contract, work the vendor down on price as the market gives them the reality of the situation.
That won’t work on everyone of course. Some will feel a deep feeling of unfairness. Some will have made plans solely based on what they were told on day one and be unwilling or perhaps unable to drop the price. If no-one ever reduced (and we can tell that they do, over 100k homes a month at the moment as discussed!), then the practice would no doubt have to stop as corporates would sell such a low percentage of homes. There will be other reasons, of course – people just change their mind, and the flaky English/Welsh system doesn’t work fantastically for many of those who are invested in it – but as I say the stat may truly stop you in your tracks. In May 2025, 51.7% of all properties that left estate agency books were transacted on. The other 48.3% were removed, unsold. Seriously. Nearly a coinflip.I liked this stat so much it was this week’s image.
In March that number took a rare foray above 60%, but mostly because of the very large spike in transactions to 150k+ for the month, thanks to the stamp changes. This stat actually spends its time in the low-to-mid 50%s in a “normal” looking market. What a dysfunctional system we operate within!
There was a net increase in stock of over 40,000 homes on the market in May. May 2018 was similar – the normal number looks more like 10-15k more on a “typical” year. Nothing to read into that just yet, but just how much stock can the market cope with before it turns into a buyers’ market? The 756k number is the highest for many years, and when buyers don’t match sellers, you know what has to give…..price. Am I calling a drop in pricing here? No, but I’m calling not much of an increase – not even keeping up with wages and inflation. I’d expect flat output from Halifax and Nationwide over the coming months.
This is supported this week by Chris sharing the £/sqft pricing data for May 2025. £346.25/sqft was the number – which hasn’t moved much since November 2024 (there’s noise up and down, but £342 was the number in November 2024). So – that’s 1.25% over 6 months, with – to my mind – 3 more flat months coming. Predictions this year of 3-4% rises (the market consensus and my own number was 3.75%) look to be dashed somewhat, unless there’s a late flurry in Q4 2025! December’s number in 2025 was £339/sqft so we are 2.1% up on that, but the £/sqft metric tends to drop back each December (which is why it is important to compare apples with apples). Close, but a miss to the downside for my prediction looks the most likely at this time. Chris loves to share his graph of significant correlation between the SSTC price/sqft and the land reg prices 5 months down the line – which does enjoy incredibly strong correlation, well into the high 90s – about as good as it gets, basically – so May’s number drops in in October, as it goes (or, put another way, we will have a very strong steer on 2025’s performance within a couple of months).
Fall throughs are staying below the 7-year average, at 23.2% (last week 22.8%). All relatively normal “noise”. The net sales are still playing ball – 6% up on last year and 11.2% higher than 2017-19 – not quite at 2022 levels but the stamp cliff will have forced a few more transactions out of bed of course, and as the year progresses then in the absence of any more shocks, things will likely catch up because transactions were significantly “disturbed” by the 2022 budget and the bond markets, of course, in comparison.
I always give Chris a weekly shout out here because he’s more prolific than “just” this epic tome he releases weekly on the UK property market – he comes up with some great stats on a regular basis. Drop him a like, subscribe, and all the rest of it and some kind words for his content creation. If you are in the industry and want support in growing your business or to be a more effective communicator/be more in touch with your local market – that’s his core business – give him a shout. The article gets published on the Property Industry Eye website, and the video on his YouTube channel – @christopherwatkin
Only kidding. That would never happen. This is a chance to fill the other couple of slots with data points we don’t look at particularly often. I’m going to talk about public opinions and social trends – a risk of going a little “off book” here, but in case readers and listeners aren’t aware of this monthly publication by the ONS. If you feel the Overton window – what’s currently capturing political discourse – is shifting or has shifted, this is an evidence-based way to look at it. This might give insight into future voting trends and, beyond that, how the entire system might shift as time goes on. There’s also the Homes England Housebuilding stats for 2024/25 fiscal year which were released this week, and give insight into housing programmes delivered by Homes England and just how different they were to the year before.
No further ado, then. The flash PMIs. The strapline – just absolutely magnificent, compared to the past 9 months or so. “Output growth picks up in June. Prices charged inflation eases to its lowest for nearly four-and-a-half years”. Honestly – if you were on the Monetary Policy Committee that sets the base rate of interest – that headline alone (if you were so predisposed, which you wouldn’t be) would be enough to make you vote to cut rates next time out, I’d think. That’s not how central bankers work – but let’s see just how good the actual figures are in the report.
Composite Index up from 50.3 to 50.7. OK, after that headline I was expecting more, I’m not going to lie! Services – 51.3 from 50.9 (basically explains the move in the composite, as by far the biggest component). Manufacturing? 47.7, so still anaemic, but up from 46.4, so at least half decent progress.
The talk was very positive overall, though. Shall we dig in to a little of that, though, and perhaps reach for the cold water tap? Why would prices charged inflation be the lowest since January 2021? It is great news all round (well, not so much for business) – but is it because the options for profit-led inflation are lower than they have been over all of that time? It isn’t like costs have abated much. Firms must still be reeling from Awful April.
Down in the detail the report does admit the upturn is marginal. Overseas demand is still suffering from tariff uncertainty (and as discussed, the 90-day deadline is nearly upon us). They still report private sector employment down for the 9th consecutive month, faster than in May, and hiring freezes and redundancies are up. The Chief Business Economist prefers to characterise the UK economy as “sluggish” as we end Q2/H1, and throws a dart at the economy growing at 0.1% in the second quarter. I still think this is best case scenario and let’s not forget -0.3% for April is already in the books.
It doesn’t seem like the Chief Business Economist wrote the headline, indeed. Business confidence lost ground in June, although he points to geopolitics for that. He finishes – as he often does – using his little corner of influence to tell the Bank of England what to do – and points out that near-stalled growth, falling employment and lower inflation opens the door to the Bank of England to cut rates. I’d have to agree with his assessment on the face of it, as long as we all ignore that core inflation is well over 3%, CPI is well over 3% and will be for the rest of the year, and the likes. Not sure when those are pencilled in to fall below 3% at the moment, let alone 2%, but why let that put you off? Or, being less flippant, the counterargument is saying “act now, because it takes months and even years for the rate cuts to take effect” – which is true – and the economy is more important than inflation, right now, at the moment – also true, but not the Bank of England’s precise brief, you will note.
The OIS curves that indicate what the market thinks of the base rate in one years’ time, by the way, indicated 3.43% in one years’ time (on 25th June) or 3 more cuts in the next 12 months/8 meetings. It’s certainly trended downwards, quite healthily, for the past few months. Remember, though, all of this is already priced into the gilts and swaps prices (theoretically!).
Public opinions and social trends, then. A monthly report – and unlike many others released by the ONS, very much up to date. This data was collected between 7th May and 1st June. One question asked in the report is “What are the most important issues facing the UK today” – note that people can answer more than one. 86% said the cost of living, 85% said the NHS and 70% said the economy. 62% of adults reported an increase in the cost of living in the past month – the ones who pay the council tax bills, presumably! In last month’s report this was 72%, however. 92% said the cost of their food shop went up – which pertains back to a fairly dramatic jump in food inflation to over 4% as reported last week. 48% of adults said they would be able to save in the coming 12 months – below 50s were ahead of over 50s on this stat, interestingly enough.
53% reported climate change as an important issue – this has trended downwards as a whole since July 2023 when that number was 69%. That’s interesting – and the realist in me says that people think it is important until they need to pay for it, and then when there are (for example) climate levies right, left and centre on top of inflation, the importance starts to fade away somewhat. That 53% breaks back as 57% of women and 50% of men, FYI.
What else is important below the headlines? 62% said crime, 59% said immigration, 56% said housing; 42% said employment, 48% said international conflict, 46% said education, and 13% said industrial action (which has trended down from the 40%s during the “Covid strike” period).
Alongside the 92% reporting food prices going upwards, 21% reported rent or mortgage costs going up, 69% said utility bills, and 37% said fuel. On savings, the older you get the less you think you can save, to a large extent. I’m not sure here people are reporting on ability to save; I think they are more reporting on how likely they are to actually save. That’s just my opinion of course. It may well make some sense – the average 16-29 year old may well still be living at home, supported more by family or just being in a multi-generational household, without dependents. At 50 to 69 the household income might start to trend downwards (it definitely does at some point during that age bracket, around 55 from the stats I’ve seen) – and so there’s less ability to save even if dependents are largely grown by then.
This report also calls across to another report, which I will sneak in here around Hybrid working. 28% of working adults worked hybrid between January and March 2025. A few sub-headlines from the summary of that, out of interest; workers with a degree or equivalent qualification were 10 times more likely to work hybrid than those with no qualifications. The higher the income band, the more likely the hybrid work. Hybrid work is more common in less deprived areas (which follows on, of course). Full-time hybrid work is much more likely than part-time hybrid work. It’s also more common among employees than the self-employed. The age band most likely to do hybrid work are those between 30 and 49.
Of course, annoyingly, this data series only starts in May 2020, because it then became obvious it would be key to collect this data. At that point 30% were travelling to work, c. 35% worked from home, and about 10% were working hybrid (and no, I don’t know what the other 25% were doing – but the ONS point to a question in the wording of the survey in March 2022). From that point hybrid has been volatile – but trending upwards, and its current 28% is near the top for the data series. Working from home – in spite of what the media has fed us – actually trended down until about March 2022 and then has largely moved sideways, sitting at about 15% at the moment. The movements since March 2022 look very much flat with some noise.
Thus – travelling to work only has trended down by roughly the same amount that hybrid working has trended up. Presumably the other 25% don’t fit into one of the three boxes because the survey questions say “only” – as in “I only hybrid work” rather than “I work from home in emergencies in situations where before I would have had to have a day off” – child off school sick, for example.
So today it looks like about 45% travelling to work only, 28% hybrid-only, and 15% or so WFH-only. Covering nearly 90% now, and they do detail (but don’t graph) that the fourth choice is “employed but didn’t work” – what that means, I will leave to your imagination!
Righty-ho, the Homes England housing stats, published this week. The tale of the tape – key results. 38,308 starts, 36,872 completions in England. 30,087 affordable starts on site – so, 79% of all of their starts, and up a massive 0.6% year-on-year (ouch).
Now – having been deep into social and affordable (or not) over the past weeks here in the Supplement – I thought a breakdown of those tenures would be interesting. So of those 30,087 starts – 18,942 have a tenure yet to be confirmed (which drives a truck through the point of the rest of it, to an extent) – this is important apparently as “flexibility for strategic partnerships” – it would be very easy to be very cynical here. 5,680 were for social rent – which has to be seen as a victory – 43% up. But, in reality, not even 6,000 homes for social rent in England. Angela Rayner has got a long way to go. 2,800 were for shared ownership and rent to buy – down 27%. 2,665 were for affordable rent, down 18% – so you can see where the social rent homes came from. In terms of a “product mix” – that has to be seen as a real positive. In the real numbers terms, it is a tiny pebble in a pond, of course, but probably the first piece of real evidence that Labour have made some moves in the right direction and had some impact which will be positive for society at all levels.
How about completions? Nothing to do with Labour here really, you’d think, although they could have had considerable influence over those “tenures tbc” you’d imagine at the times they actually started. 28,370 affordable completions was up 15% on the previous year and the breakdown here was 11,883 for shared ownership/rent to buy – the biggest slice and up 13%. 10,755 for affordable rent, up 15%. 5,732 for social rent, up 33%. All good news, but all on the back of a very weak building year in 2023-24 where construction inflation aside from anything else had had an impact, as did the uncertainty in a limp market, of course. Still – not too much cold water needed here. The right direction, with 1.5m homes still remaining an utter pipedream.
As a side note, London isn’t included here since that’s down to the Mayor – apart from where Homes England has administered a programme on behalf of the GLA.
Make no mistake – that 5,680 total social rent starts is a really dramatic increase. Instead of talking year-on-year and percentages – here are the social rent starts in the years back to 2017-18 in reverse order (so starting with 2023-24): 3961, 2226, 1853, 2472, 2770, 1332, 1693. It just shows you the quantum of the issue this Government is working with when it comes to social rents, as well, which in the absence of a much better system for rent (such as flex rent (Grainger) or the community rent model (Rodwell)) – are drastically needed.
To wind up the macro, then – the gilts and swaps. When I mentioned the 1-year forward curve for Bank Base Rate prediction at 3.43% earlier on, I neglected to tell you that it was down from 3.54% the week before. So – that is indicative of a down week on the gilts, and indeed it is what we had. We closed at 3.972% yield after an open at 4.067% yield. Very little dissent in the market – it was just a trend downwards calmly in the first half of the week, and then mostly sideways trading in the second half. Below the magic 4% as the hot weather gets to everyone!
I’m going to start talking about the 30-year curve weekly too. This could be a very long project….but the steepness of the yield curve looks even sharper than last week after my epic tome. The 30-year yield is actually down on the week from 5.295% to 5.275%, but you can see how the needle hardly moved because of the change in one-year expectations; it made much more difference to the 5-year curve. Indeed the yield curve tells a very interesting story this week, with the 3-year closing at 3.661% and climbing fairly steeply to the 5-year point and beyond. If this continues, a strategy I’ve advised against for years may well be worth a punt IF you believe inflation will be back under control within 3 years time, or you believe that a recession is inevitable under this Government. One swallow does not a summer make, so let’s not draw that conclusion yet – but with a 30+ basis point difference between the 3-year and the 5-year, a 3-year mortgage might be an interesting solution (there are not that many products, but there are some out there).
We are better, of course, to look at the swap rates to make such a conclusion (or even posit such a hypothesis, I should say) – and the reality is that the 3-year is trading at 3.555% (or that was Thursday’s close, anyway) compared to 3.615% on the 5-year. So there’s very little in that at the moment, but I’ll keep an eye on it. The 3.615% is great news, and sees 5.6% as this week’s best guess at the cost of debt. The cautious person within me is staying at 6% cost of debt, but will very soon be moving down to 5.75% as my “6 months time best guess for cost of a 5-year 75% interest only mortgage”, which opens up some more avenues on the purchasing side of things. What will I be looking out for? Stability on the forward curves, and the market to get the cut it is now very much expecting in August. This week has very much played out to make that look even more likely, I must say. 3.951% was the market close on the 5-year gilt on Thursday, and that 33 basis point discount continues.
So all in all, a good week for the gilts. The sad reality is that a flat economy and unemployment going the wrong way is what is needed to help calm inflation down – give people less money and then they can’t spend it, basically. The others also continue to be worried and choose to spend rather than save. Not ideal, but for interest rate cooling it is perhaps necessary and it is better than a recession. I wouldn’t change anything in the overall reporting of the path of the interest rates though – 3 cuts, now the expectation in the next 12 months, is still in line with “slow and steady” which has been the Bank of England line since the start of this cutting cycle. Is it one this year (August looking ever more likely as I’ve said) or two more before the end of the year and one early next year? We will find out. My gut says don’t jump ship and stick with one this year, as inflation still struggles to get below 3.5% by the end of 2025. There’s a fair bit of freedom down to 3.5%, though, in market terms – since the market believes that that is the natural rate, or thereabouts, at the moment. Cutting below 3.5% would, as of today, be relatively difficult to justify although if it was felt the economy needed some stimulus (so inflation would need to be below 2.5% I’d think, and the 3-year forecast would need to be 1.6% or lower from the Bank of England) then it could go lower. I just think there are further inflation-related struggles to come, whether they come from the Middle East or elsewhere – and the genie is not yet back in the bottle, and too much of the Covid-inspired inflation has embedded itself within the system. In many ways we couldn’t clear that out WITHOUT a recession, but a slow, sluggish, treacle-like economy as I’ve referred to for the past 2.5 years now is more likely unless there is a trigger event.
Enough macro, then. Deep dive time. I’ve wanted for some weeks to look at the changes in mortgage lending that have been referred to a number of times in various places since earlier this year, and this is the week I’m going to do that. Why is this important? Because with looser lending conditions, house prices will rise more than they otherwise would have done. The availability of credit (which also has to include a notion of the price, or affordability, of it) is the number one driver of UK house prices – not the economy, or employment, or anything else. This does make a lot of sense if you consider that most house purchases are funded by more than 50% of borrowed money – so that money would dictate more than 50% of the direction of travel of house prices! It doesn’t get lent without jobs, of course – so this isn’t the only driver, but it is the chief one.
So – back to the context here. Starmer was derided and jeered at, in the press, for asking for “help” from regulators as to what the regulators themselves would change to find some growth. There’s probably two broad positions to take, here. The “Thomas Sowell” (look him up if you don’t know who he is, an incredible thinker/philosopher/author but too conservative for many!) – which would be summarised as “the regulator looks after the regulator. Don’t ask them to cut their powers or their budgets or they will be out of a job!”. Opposing the “Sowell position” would be the inherent optimist – sure, the regulators can see what goes wrong, and what might be needed to cut out some of that waste.
As usual I sit somewhere between the two poles, although I do likely sit a bit closer to the Sowell position. However, my take would more be “well, it depends on how you position the problem.” Let me elaborate. If you go to the regulators talking fairly tough – as in, “you need to come up with some meaningful loosening of the belt here otherwise I’m going to send in some tough operators to do it for you” – well, that could work as a one-off style arrangement. Labour would be buoyed by the fact that their changes to the National Planning Policy Framework were deemed by the OBR, the markers of the homework, to add 0.2% to GDP by 2030. Any sensible leader at that point would have said “more of the same, please”.
There’s a more obvious political gain here, as well. Labour aren’t doing well in the polls. That’s not atypical for an incumbent, and the hard stuff is largely done, I’d suspect (and indeed has mostly been chickened out of, with U-turns, but there we go). This is all notwithstanding a black swan or crisis, of course, but they have inherited a pretty bad situation. I’m not talking £22bn black holes here, but I’m talking demographics and the NHS. The population problem – many more getting older than coming into the workforce – leaves an impossible solution of even more migration (a guaranteed loss at the next election, you’d think) or spending cuts – or outsized growth. The first two are not going to work, or be enacted, so that leaves number 3!
The cutting of regulations is one of the factors that could boost that growth. The ramping up of costs for business, or the introduction of more regulations (Both of which have been done and are being done) are not conducive to this, however. But – back to that obvious political gain. There’s a great correlation between the property market and the success of an incumbent Government at the next election. Still, as at today, many traditional right-leaning news outlets and individual figures are questioning the true capability and likelihood (and frankly, appetite) of Nigel Farage to actually be the prime minister, and Richard Tice to be the Chancellor. Westminster are still not taking it very seriously at all, but outside of that bubble the people are – and I expect many readers and listeners are feeling relatively politically homeless at this point, and at least have some sensible questions about what a Reform government would really mean.
Aside from “selectively borrowing” from Reform policy – which has already been going on – another clever way of outflanking them and making the most of the incumbent’s advantage, which is fairly legendary in politics – is to ensure the housing market is doing OK. A subtle shot in the arm would help – and indeed a Labour insider has confirmed as much to me. This is definitely policy, but policy that would never be spoken of, because inflating house prices doesn’t help the core Labour membership base who are more likely to rent than own, of course.
However, two-thirds of the country is “owned households” – whether mortgaged or not, and the older you are, the more likely you are to both vote and own a home. That all makes sense, and not speaking of it also makes sense as your core base would be very upset with you for even thinking it out loud, I’m sure!
So – on to what’s actually happened since this ask of the regulators to find a way – and remember, this ask was across the board, but I’m going to focus on mortgage regulations and guidance here, as they are the ones that will have an impact on house prices.
Back in November 2024 the Bank of England Financial Policy Committee (not the one I focus on) recommended raising the volume threshold at which the 4.5x income cap applies from £100 million to £150 million of annual new mortgage lending. A decent (50%) increase, of course. This was in a consultation paper issued in April, the consultation closed in May, and final rules are expected to take effect in the second half of 2025. What does this mean? It means that more people can borrow at above 4.5x joint income. I have alluded to Nationwide’s “6x income” product – you can see where this is limited but also that Nationwide can issue an extra £50m of these before being subject to what we might colloquially call the “15% rule” – no more than 15% of new loans can exceed 4.5x income; this is technically called the “Flow limit threshold”, if you are interested. The 15% could be changed, of course – say to 20% – that would have a more dramatic impact, but the more conservative nature of the regulator has not allowed that change to creep into the Overton window just yet (my view would be more – why not change this steadily, to 16% to start with, and creep it upwards, so that if it gets too high you can put it back down – but that’s my view as someone who hates arbitrary limits that just happen to be to the nearest 5% rather than scientifically derived/data-driven solutions).
What’s also on the table at the moment? Simplifying mortgage rules, with a consultation paper published in May 2025 by the FCA. This includes loosening the advice requirement, which is gauged as perhaps a little heavy-handed in vanilla cases – allowing some lenders to operate as execution-only without providing full advice – there would still be safeguards and a duty to those consumers, of course. Advice would remain mandatory for debt consolidation, equity release and the likes – which sounds very sensible.
The next bit will delight many – ability to reduce mortgage term or remortgage to a new lender without a full affordability re-test, assuming the change doesn’t increase monthly payments. Lenders could use this optionally, depending on their risk appetite. The point is a lighter touch and a faster and cheaper process, therefore, increasing competition on remortgages.
This consultation closed in early June. There will be a policy statement by the end of Q3. Nothing concrete yet, but the right language in terms of deregulating rather than regulating further. There is no need, according to the FCA, for a long implementation period, so these changes could be in place by the end of the year, but they are of course not guaranteed!
There’s also a discussion paper on a pertinent subject which is close to my heart at this time – the future mortgage market. Particularly – much more demand for later-life lending, more self-employment, and they mention specifically “rebalancing the collective risk appetite in mortgage lending”. Positive sounding chat, but just chat, at this time. Said discussion is open until 19 September, after which rule changes will be considered. I personally believe equity release is a fantastic part of any estate planning, and is certainly a part of my later life plans without a doubt – and am getting stuck into that as soon as I am old enough – but again, the chat is positive in terms of “oil for the wheels” of the system and deregulation.
Now – to the other side. Talk of stronger protections for borrowers in financial difficulty. Changes already took place in November 2024 to provide more proactive and enhanced support to customers in difficulty already or “at risk”. More options, more broadly looking at other debts of the customer, and only repossessing as a last resort. There’s already embedded reliefs from 2023 in terms of people being to request 6-months interest only, or a term extension, without an affordability assessment. Sensible, but already in place.
OK – that’s the regulatory landscape summary. What have the lenders done in response?
Generally – they have been welcomed, as you would imagine. All of this should cut costs and improve the customer experience/journey. March 2025 saw a reminder published by the FCA about the existing flexibility in the interest rate stress test rules, because they knew that borrowers were being stress-tested at rates that were frankly unrealistic. To simplify, if you imagine that the stress test before was prescribed (up until 2022, from 2014) at 5.5% or 5.25% as it dropped to in 2021, lenders may have interpreted that as “2% above borrowing rate” (or at some points, up to 4% or more above borrowing rate”). Adding 2% or more on when rates had normalized made very little sense, especially when you look at sensible historical context from the early 2000s – rates were “back to normal” but in reality a little on the high side, as I commented at the time.
The reminder said – no need to fix that buffer, and as market conditions change – change the damn buffer! This is a bit of a classic “anchor” – “But it’s always been done that way ever since we can remember” (well, since 2014) – OK then dummies, change it!
Several banks and building societies acted. Skipton – who have been proactive in the space and often quoted, for example in introducing 100% mortgages (although too little too late in my view, once rates had already normalised) – said they would lower the stress rate and income hurdles, and raise LTI limits (the flow limit) for certain high LTV loans. The CEO argued for responsible higher LTI lending – and according to them, borrowers with >4.5x income loans have comparable credit performance thanks to their robust underwriting.
Others who played ball – Santander put their stress test down by 0.75% above their SVR, which in the real world would allow borrowers to borrow £10k-£35k more depending on their circumstances. They were the first off the blocks in March 2025. Nationwide did a bit more, and reduced by between 0.75% and 1.25% on stress tests – particularly for those on 5+ year fixes – allowing £28k more on average to be borrowed. The HBOS group did similar (including Lloyds here, remember, the biggest lender of them all in the UK) – dropping to roughly 7% on their stress tests (from about 8.25% at the time) – giving borrowers around 13% more purchasing power/allowing them about £25k more firepower.
So – in summary – you can see there that buyers can potentially borrow about an extra £25k per house. That’s important for house prices. How long does all that take to kick in? Months, most certainly, but it could provide a shot in the arm by the end of this year for sure, and potentially into the next.
The smaller lenders are happy with the limit moving from £100m to £150m on the LTI-constrained loans – but the larger lenders want a bit more, of course. My proposed “creep” from 15% upwards, nice and slow, would do – not if your political time horizon is short, of course, but something would be better than nothing. Just this month building society leaders have lobbied to increase this 15% limit – pointing out that this constrains otherwise creditworthy first-time buyers. So we might see a move here – whilst this is in discussion. Let’s see.
As always, I will be watching all this carefully. You know I like to get into the “so what” – what sort of impact, what size, might these changes have on the market? Well, we are “mid-change” here, and I would focus on the years 2026-28 to see the impact this might have on the market.
Let’s do the easy bit first. Will it mean that prices go up more than they otherwise would have done? Absolutely, categorically, yes. How much more? Well, because we are mid-implementation, consultation, and discussion here, we don’t know just how much. It’s not easy or perhaps even worthwhile to say whether this adds 1% or 5% over the next 3 years – but there will be a material impact. How could you go about forecasting it?
Well, if you take as read that the average large lender has increased affordability by about £25k per borrower (by tweaking stress tests after their FCA reminder), that is one way to look at it. People can borrow about 10%-11% more than they could have done. They will still, at this time, largely be impacted by the flow limit – although the £100m to £150m move makes some difference, it is chicken feed to the big guys – mortgage lending was nearly £47bn just in Q1 2025, and so this would only impact a small percentage of that.
Savills have predicted an extra 14%-24% more first time buyer transactions over the next 5 years, meaning 47k-80k more FTB purchases. Savs model this into an extra 5% to 7.5% of growth – all on top of the normal “baseline” growth. 1% extra per year, with no real clumping, they think. I’d think slightly differently – you’d have a whole number of FTBs in the pipeline who would “clear out” slightly and clump towards the beginning, meaning more impact sooner – then the system normalises and gets used to the new world, if you will. It’s highly possible that many of these potential borrowers haven’t heard about these changes just yet (and some are, of course, not completely confirmed or still in discussion!).
It’s not right to not consider the constraints already on affordability just by having “normal” interest rates rather than cheap ones, of course, but the pool of people who have been sitting waiting for rates to go back down has been dwindling, although it won’t be down to zero just yet. If interest rates do ease a little – I don’t see it coming much on mortgages as I’ve said, and my best boundary is 5.5% cost of buy to let debt (including arrangement fees etc) – but I’d love to have been a bit too bearish here! So – rates down PLUS easier lending conditions could be kindling for the fire.
Can we quickly build more houses though? Not quickly – but if prices do start to look very healthy, which we do have a reasonable recipe for here – then housebuilders will ramp up activity. That’s a slow process, that’s started (a bit) thanks to a sluggish year in 2023 now being behind us.
Savills also sensibly point out that this might just mean more transactions. Stamp duty has worked in the opposite direction there, but if you can borrow more, you can put more deposit towards stamp instead, can’t you? Savs believe house price growth will outpace income growth in 2026, meaning their forecast moves to 4%+ for 2026 in all likelihood (we will see!).
What about regionally, before I sign off? Well, 30% of high LTI mortgages were in London alone – which won’t surprise you – and there’s a huge concentration of them in the South East. This might be the tonic for the sluggish southern market to allow it to regain ground on the midlands and the north, which has trounced it for capital growth since the pandemic. Enough to right the balance completely? Most likely not, but it is bound to help – and we will follow this on the ONS figures aside from anything else, on a monthly basis. Affordability still remains a major issue, particularly in London. Deposits required could fall 10% or even up to 22% according to Savs, so that would help if the deposit blocker really is the blocker it is made out to be!
The flip side of that is that this shot in the arm may not make a huge difference in the provinces, which are already doing OK of course. So, the nationwide figures we might expect to converge together a bit more, with the rules driving the South East particularly back towards the rest of the UK in terms of percentage increases. If we only considered the North and the Midlands, then house prices would have been up 4%-5% of course in recent years – so that’s a very reasonable stab at near term future price growth, or perhaps even better.
We do need to remember that worse terms for SDLT drag transactions quite a bit, before we get too excited. The fair conclusion is the price impact of these changes being mostly felt in the supply-constrained expensive regions, with the regions simply seeing more transactions than they otherwise would have done.
The timing looks quite clever for the next election, and I must applaud this on all selfish levels as well, of course – let’s look at it as a bit of cashback from Rachel, after all she’s already imposed upon us, I’d suggest?
If you haven’t booked for Thursday – 3rd July – for the next Property Business Workshop too, on Joint Ventures and Mergers & Acquisitions – then let’s face it, you probably aren’t coming by now – but I know some have to book late because of other commitments that they have! Another fabulous day of learning and discussion is guaranteed! Get booking if you are coming – book here: http://bit.ly/pbwseven
Above all – please remember to Keep Calm, ALWAYS listen to or read the Supplement, and Carry On; there will be opportunities abound this year and towards 2030 – the risks around at this time, while they feel significant (the geopolitical ones) are far less meaningful to the UK housing market than they have been for several years – of that I have no doubt. Prices are on the up…….Good luck!
