UK Mortgage Rule Changes Expected to Raise Average House Prices by £19k Over Five Years

Recent changes to mortgage stress testing rules in the UK, encouraged by updated Bank of England guidance, have allowed lenders to offer buyers up to £40,000 more borrowing capacity, which is expected to boost house prices by between 5% and 7.5%, adding around £19,000 to the average home price over the next five years. This easing of affordability checks is predicted to lower the average deposit needed by first-time buyers from £58,000 to £45,000, potentially increasing first-time buyer transactions by up to 24%, or more than 80,000 additional purchases. Analysts from Savills caution that while these relaxed lending rules will expand the pool of buyers and support housing market activity in the medium to long term, the rise in house prices could temper the overall increase in transactions. Despite the surge in mortgage lending and completions in early 2025 driven by a rush before Stamp Duty changes, affordability pressures persist due to rising prices offsetting lower interest rates, leading many buyers to extend mortgage terms to reduce monthly payments. The government and financial regulators continue to support reforms aimed at making homeownership more accessible, with lenders like Santander, Lloyds, and others relaxing stress test criteria to unlock increased borrowing. However, experts note that these changes may not be sufficient for the government to meet its housebuilding targets amid ongoing economic uncertainties.