What does the mortgage market look like for first time buyers in 2025? | Mortgage Market Blog | Fox Davidson
Fox Davidson
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2 weeks ago
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2025 First Time Buyer Mortgage Update

Navigating the UK housing market as a first-time buyer in 2025 presents both opportunities and challenges. This year, we’re seeing a landscape shaped by economic recovery efforts, policy changes, and a dynamic interest rate environment. This report aims to provide an in-depth analysis of the current mortgage market for first-time buyers, detailing the latest trends, policy changes, market predictions, and practical advice to help you step onto the property ladder.

Historical Context and Current Market Snapshot

Interest Rates and the Bank of England:

  • Historical Perspective: UK interest rates have oscillated significantly over the decades. From the high of 17% in 1979 to the lows of 0.1% in 2020, the current rate of 4.75% in early 2025 reflects a cautious approach to managing inflation and fostering economic growth.
  • Current Rate: Forecasts suggest a potential cut in the February 2025 MPC meeting, with predictions leaning towards a 25 basis point drop to 4.50%. This optimism stems from inflation being under control but still above target, suggesting room for monetary easing.

Housing Market Dynamics:

  • House Prices: The average UK house price has seen a modest increase, with projections for 2025 suggesting a 4% rise. This growth is fueled by a backlog of demand from first-time buyers who delayed purchases hoping for better market conditions post the 2024 election and budget announcements.
  • Transaction Volumes: First-time buyer activity is expected to increase, driven by new government initiatives and the anticipation of lower mortgage rates.

Policy Changes and Government Schemes

Stamp Duty:

  • Threshold Adjustment: From April 2025, first-time buyers will face a lower stamp duty threshold, dropping to £300,000 from £425,000. This change might increase the cost of buying for those purchasing properties above this value but could stimulate activity before the deadline.
  • Impact: This has led to a predicted surge in transactions before April, potentially pushing up prices temporarily due to increased competition.

Government Initiatives:

  • New Home Building: A commitment to building 1.5 million new homes over five years aims to increase supply, which could help moderate prices. The focus is on affordable housing, directly impacting first-time buyer affordability.
  • Schemes for First-Time Buyers:
    • Help to Buy: While the scheme has ended in England, similar models continue in Wales, offering equity loans.
    • Shared Ownership: Allows buying a share of a property while paying rent on the rest, making home ownership more accessible.
    • First Homes: Offers discounts on new-build properties for first-time buyers, though availability can be region-specific.

Mortgage Products and Rates

Current Rates:

  • Fixed Rates: The best two-year fixed rate mortgage is around 4.20%, with five-year fixes at about 4.07%. These rates are expected to dip slightly if the BoE cuts rates, potentially dropping two-year fixes to around 3.5% by year-end.
  • Variable Rates: Tracker and SVR mortgages might become more attractive if base rates fall, but they carry the risk of rate increases if the economic climate shifts.

Lender Policies:

  • Loan-to-Value (LTV) Ratios: There’s a push for more 95% LTV mortgages, possibly supported by government guarantees until June 2025, making it easier for those with smaller deposits to enter the market.
  • Stress Testing: Lenders are considering relaxing these rules to allow more “responsible risk-taking,” potentially increasing how much first-time buyers can borrow.
  • First time buyers currently enjoy increased income multiples of 6 x income for higher earners with £40k plus salary.

Our Market Predictions for First-Time Buyers

Mortgage Affordability:

  • Easing Conditions: With expected rate cuts and slight wage growth outpacing house price increases, affordability might improve. However, the impact of new stamp duty rates could counteract these benefits for some.
  • Market Sentiment: We are seeing a positive outlook among first-time buyers, with many anticipating easier accesses to mortgages due to regulatory relaxations.

House Price Forecasts:

  • Growth Expectations: House prices are projected to rise by up to 4%, with some areas potentially seeing higher increases due to demand outstripping supply.
  • Regional Variations: London might see less aggressive growth due to affordability issues, whereas regions with new housing developments could see more dynamic growth.

Practical Advice for First-Time Buyers in 2025

Saving for a Deposit:

  • Maximize Savings: Investigate Lifetime ISAs for first-time buyers, which offer a government bonus.
  • Shared Ownership: Consider this if saving a full deposit is challenging.

Choosing the Right Mortgage:

  • Fixed vs. Variable: Decide based on your tolerance for risk. Fixed could offer stability, while variable might benefit from falling rates.
  • Use Brokers: Mortgage brokers can access exclusive deals and provide personalised advice, especially crucial in a changing rate environment.

Navigating Stamp Duty Changes:

  • Timing Your Purchase: If possible, aim to complete before April to benefit from current thresholds. If this isn’t feasible, understand the new costs and factor them into your budget.

Future-Proofing Your Mortgage:

  • Overpay Options: Look for mortgages that allow overpayments without significant penalties to reduce the loan faster if your financial situation allows.
  • Remortgaging: Be prepared to switch deals as your fixed term ends, potentially securing a lower rate if market conditions permit.

Our Thoughts

2025 presents a nuanced landscape for first-time buyers. While there are hurdles like the adjustment to stamp duty, the year also promises opportunities through potentially lower interest rates, new housing supply, and relaxed mortgage rules. Success in this market will hinge on thorough preparation, understanding of current and upcoming policies, and strategic timing. Whether it’s saving for a deposit, choosing the right mortgage product, or timing your purchase, the key is to stay informed and proactive. As the market evolves, so should your strategy, ensuring that when the opportunity arises, you’re ready to make your first step onto the property ladder a successful one.

To discuss everything mortgages and property finance with an FCA regulated mortgage broker please send an email to [email protected] or call the Bristol head office on 0117 989 7950.Alternatively, you can contact us via our website.