Mortgage News

EY ITEM Club – Mortgage Lending to Double

UK mortgage lending is set to surge from 1.5% growth in 2024 to 3.1% in 2025, driven by falling interest rates and rising consumer confidence, according to EY ITEM Club Outlook. Further rate cuts are expected to boost borrowing appetite, though high mortgage rates and rising house prices will keep growth steady at 3.2% in 2026 and 3.6% in 2027.

The UK’s economic recovery, slower than anticipated, is projected to gain momentum, with GDP rising 1% in 2025 and 1.6% in 2026. This will support banking, with total UK bank lending forecast to increase from 2.3% in 2024 to 3.7% in 2025, then to 4.1% in 2026 and 4.3% in 2027. Default rates are expected to stabilise, with mortgage write-offs dropping to 0.001% in 2025 from 0.004% in 2024, before edging up to 0.002% in 2026 and 2027.

EY’s Martina Keane notes that the gradual recovery is boosting borrowing confidence but warns of risks from geopolitical tensions and upcoming tax rises. EY’s Dan Cooper adds that while the lending outlook is positive, growth remains below past peaks, offering banks a chance to focus on transformation and new technologies.

Loan to Income Multiple Changes

The government is pushing for economic growth, and the Financial Conduct Authority (FCA) is considering loosening mortgage regulations to boost homeownership. Proposed changes include raising the 15% loan-to-income (LTI) cap, which limits lending above 4.5 times income for lenders issuing over £100m yearly. The Intermediary Mortgage Lenders Association (IMLA) supports this, arguing for more lender flexibility to benefit borrowers.

The current 15% LTI limit lacks justification, distorts the market, and disadvantages first-time buyers, single buyers, and moderate-income households. Most lenders cap lending at 11% to avoid sanctions, despite many borrowers passing affordability tests for higher multiples. Raising the limit to 20% or removing it entirely could help.

Since 2008, first-time buyer numbers have dropped by 3.1 million, partly due to LTI restrictions and post-crisis regulations, despite strong affordability from 2013-2022. This limits access to homeownership’s benefits—security, health, and wealth—potentially creating a less stable, rent-dependent population needing state support later.

Easing LTI rules could spur the housing market, construction, and related industries, driving growth. The case for change is clear, and political will may now align.

Housing

Homeowners Set to Gain from Simpler Planning Rules with New Bill

A groundbreaking bill could soon make it far easier for homeowners to upgrade and expand their properties without the hassle of planning permission. 

The Permitted Development Rights (Extension) Bill currently under debate in the House of Lords, promises to cut red tape and empower homeowners in England and Wales to enhance their homes with greater freedom. 

What Could Homeowners Do Without Planning Permission?

• If the bill is passed, homeowners will be able to:
• Add up to one metre to the height of their roofs.
• Build side and rear extensions.
• Raise shared walls between properties.
• Add extra floors to bungalows.
• Construct new floors on buildings in town centres, up to four storeys high.
• Install eco-friendly upgrades, such as air source heat pumps, solar panels, and electric vehicle charging points.

Lord Lucas, who introduced the bill, highlighted its importance, saying: “It’s only natural for people to want to expand their homes. Families want to stay rooted in their communities, close to jobs, schools, and loved ones.” 

He also pointed out the wider benefits, noting:

“Adding a bedroom so an adult child can stay at home, rather than needing a separate flat, effectively halves the demand for new housing.” 

Safeguards to Protect Communities

While the bill aims to simplify home improvements, it includes safeguards to ensure fairness and safety: 

Developments must not block neighbours’ rights, such as access to light, or interfere with rights of way. 

Listed buildings will remain protected, and local councils will still oversee design standards to ensure safety, energy efficiency, and proper drainage.

For homes in flood-risk areas, extra conditions will apply. Properties must be near good public transport and include flood-proofing measures to qualify for the relaxed rules. Lord Lucas explained:

“If we’re giving people the freedom to expand their homes, it’s fair to ask them to make those homes flood-resilient, helping tackle flooding challenges in the process.” 

Concerns About Neighbour Impact

While many support the idea of easier home improvements, some peers have raised concerns about the potential downsides, especially in crowded urban areas. Lord Jamieson warned:

“A six-metre extension on a terraced house could significantly affect neighbouring properties. We need a balanced approach to deregulation.” 

He also stressed the importance of strong building controls, saying:

“If planning rules are relaxed, we’ll rely more on building control to ensure quality. But building control doesn’t cover everything—like bin storage or parking—so we may need to strengthen these systems.” 

What’s Next for the Bill?

The bill has passed its Second Reading in the House of Lords and will now face detailed scrutiny, where changes can be proposed. If it clears all parliamentary stages, the new rules could take effect six months after receiving royal assent. Until then, current planning permission rules remain in place. 

Manchester steals the buy-to-let crown

This year presents significant challenges for landlords due to new legislation affecting the buy-to-let market. Despite these hurdles, a new report from Aldermore has suggested that opportunities for profitable investments remain, particularly in cities like Manchester, which has emerged as the top investment location with a rental yield of 6.8%. Glasgow and Coventry also rank highly, offering attractive yields of 9.8% and 7.9%, respectively. However, Aldermore warns that landlords should be cautious of areas like Cambridge, which has the lowest yield at 4.4%.

Economy

UK Steel Boosted by Trump’s Tariff Threat

In response to US President Donald Trump’s proposed tariffs on steel and aluminium imports, the UK Government has unveiled plans for a £2.5bn investment to bolster the domestic steel sector. Business Secretary Jonathan Reynolds will release a green paper today, outlining strategies to accelerate state-backed funding for innovative private-sector projects. Reynolds stated: “This government is committed to securing a sustainable future for UK steel, as promised during the election, and we’re acting on it now.” Meanwhile, German Chancellor Olaf Scholz, speaking to Bloomberg, expressed confidence in the EU’s ability to withstand US tariff pressures, while advocating for a diplomatic solution to prevent a trade conflict.

Tax Rises Threaten Economic Stagnation

The UK economy is faltering, with GDP growth crawling at just 0.1% in the final quarter of 2023, and projections for 2024 slashed to 0.9%. The Office for Budget Responsibility (OBR) warns that the tax burden could climb to 36.4% of GDP this year, a level unseen since 1950. Writing in the Sunday Times, David Smith cautioned that persistent weak growth could trap the economy in a vicious cycle of ever-higher taxes. Despite flickers of hope from some analysts, the Chancellor faces mounting pressure to adhere to fiscal discipline without resorting to further tax hikes, casting a shadow over the economic outlook.

Tax Hike Sparks Wave of Job Cuts

Employees are bracing for widespread redundancies as firms react to Rachel Reeves’s £25bn tax increase. A survey by the Chartered Institute of Personnel and Development (CIPD) found that one in four businesses plans to reduce staff, marking the highest rate of planned job cuts in a decade, outside the pandemic. Shadow Business Secretary Andrew Griffith remarked: “Report after report shows business confidence has collapsed.” The retail and hospitality sectors

To discuss everything mortgages and property finance with an FCA regulated mortgage broker please send an email to [email protected] or contact the Bristol head office on 0117 989 7950.