Planned changes to the mortgage market could make it easier for older homeowners to access tens of thousands of pounds of wealth built up in their property.

The Financial Conduct Authority (FCA) wants to update affordability guidance for retirement interest-only mortgages, as part of a consultation into the wider home borrowing market launched today (9 June).

Rising house prices mean older borrowers collectively have billions of pounds of housing wealth locked up in their homes. But many are reluctant to move. Retirement interest-only mortgages can offer a solution.

To help older borrowers access some of this housing wealth, the regulator is proposing to make changes that would mean affordability for joint retirement interest-only mortgage applications are assessed in the same way as for standard joint mortgages.

In practice this would mean lenders would not be obliged to always consider a sole borrower’s ability to afford the mortgage if the joint borrower passes away.

By removing this rule, lenders would be able to more flexibly determine – based on

their risk appetite and in line with mortgages conduct and consumer protection rules – how to assess whether the surviving spouse or civil partner could still afford the required payments or what their exit strategy may be.

David Geale, executive director for payments and digital finance at the FCA, said: “We’re living longer and how many people work has changed. Our mortgage rules need to keep pace so those who can afford to repay can borrow.

“Stronger protections mean we can now safely widen access to mortgage borrowing for those that may be underserved.”

What are retirement interest-only mortgages?

Retirement interest-only mortgages (RIOs) are designed for borrowers over 50 or 55. You only pay the interest each month, and the loan is only repaid when you pass away, move into long-term care, or sell your property.

RIO mortgages can help older homeowners because it can get harder to get a new mortgage as you get closer to retirement. A RIO lets you mortgage your home in later life or provides an alternative to equity release.

We compare equity release versus downsizing in a separate article.

How does a retirement interest-only mortgage work?

A retirement interest-only mortgage is similar to a lifetime mortgage where the loan is usually only paid off when you sell the house, die or move into long-term care.

But retirement interest-only mortgages have different risks compared to lifetime mortgages. In particular, they do not feature the roll-up of interest, meaning homeowners don’t run the risk of the equity in their home being eroded – allowing them to leave more to their loved ones in the form of an inheritance.

Retirement interest-only mortgages require a borrower to manage the ongoing monthly payments, whereas a lifetime mortgage does not require monthly payments.

Demand for retirement interest-only mortgages

FCA data showed there is demand for mortgage products among older homeowners. Yet sales of retirement interest-only mortgages remain low compared with lifetime

mortgages – 3,002 RIOs versus 26,974 lifetime mortgages in 2025, according to FCA figures.

Firms have told the regulator, including in responses to its discussion paper, that the availability of retirement interest-only mortgages are constrained due to its current guidance being too restrictive.

Richard Pinch, head of banking and credit advisory at financial services consultancy Broadstone, said: “The FCA’s proposals represent a sensible evolution of the mortgage market, recognising that traditional affordability assessments do not always reflect the realities of modern working patterns, income streams and borrowing needs.

“The regulator is seeking to give lenders greater flexibility through affordability assessments that better reflect real borrower behaviour and lifetime earnings patterns. The proposals could be particularly beneficial for groups that have historically found it more difficult to access mortgage finance, including the self-employed, those with variable income and older borrowers.”

Mortgage help for self-employed

The FCA is also seeking to do more to help self-employed people get mortgages. The self-employed have typically struggled to get home loans due to often having inconsistent income, making lenders more reluctant to lend to them, seeing them as more risky.

FCA product sales data from 2025 shows around 6% of mortgage sales included at least one borrower whose employment status was recorded as “self-employed” at application. This compares to around 13% of the workforce who are self-employed, including around 1-2% who are independent contractors or locums.

Proposals include reducing barriers for lenders to offer flexible repayments for people with variable income, like the self-employed, and lend to those paid in foreign currency.

The FCA is also encouraging lenders to assess affordability based on a person’s “full and current situation”, rather than automatically excluding people because of minor or past credit history issues.

Sarah Coles, head of personal finance at AJ Bell, said: “Developing products to better suit people’s lives makes perfect sense. Self-employed people with lumpy incomes have been forced to contort their finances into paying the same sums each month under existing rules.

“A change could allow them to access products that are flexible enough to fit around their lives and their needs instead.”

Is Market Financial Solutions (MFS) a canary or a cockroach? Possibly both. The niche Mayfair-based mortgage company founded by Paresh Raja and specialising in bridging loans, which was put into administration in February, has become the leitmotif of increasing unease in the private-credit market, which some claim is a $2 trillion time-bomb.

Creditors – including Barclays, Jefferies, Wells Fargo and Apollo's structured credit arm, Atlas SP Partners – are facing an “alleged shortfall” of £1.3 billion and are “scrambling to figure out what their collateral is actually worth amid allegations of double-pledging”, says the Financial Times. The fear is that MFS might be the harbinger of more blow-ups to come.

Paresh Raja, who is now in Dubai, denies any wrongdoing. “Mistakes have been made but there has been no intention to defraud whatsoever and Mr Raja has not been the beneficiary of any shortfall (if any) there may be,” his lawyers told The Telegraph. However, he has been hit with a worldwide freezing order while accusations of fraud are investigated, says the Financial Times; he has been “barred from spending more than £5,000 a week without administrators' consent” and must provide details of all his assets worth more than £10,000.

“Once again, some of Wall Street's most sophisticated players” – already scarred by the collapse of First Brands and Tricolor in the US last year – “missed the warning signs”, says The Wall Street Journal. Even a preliminary delve into MFS's business might have raised concerns.

The firm backed dozens of property deals linked to Saifuzzaman Chowdhury, a former land minister in Bangladesh who, along with family members, built a sprawling $295 million property portfolio from 1992 until August 2024, when the government of Sheikh Hasina collapsed amid student protests. In June 2025, the UK's National Crime Agency froze 342 properties linked to Chowdhury, worth about £185 million, as part of “an ongoing civil investigation”.

Creditor allegations against Paresh Raja – who created a complicated web of entities, many registered under the names of Greek and Roman gods, to house the loans he had secured using MFS's loan book as collateral – paint “a damning picture” of his self-described “re-financing merry-go-round”, says the FT. There are allegations that eight companies that were supposedly “genuine borrowers” from MFS were actually “closely connected” to the owner. It has emerged that some listed directors and shareholders of corporate borrowers also held positions at MFS's accountants.

Who is Paresh Raja?

The details of Paresh Raja's biography are thin. He worked in consultancy before launching MFS in 2006 to fill a gap in the market by offering “bespoke loans” and financing – covering everything from buy-to-let mortgages, to refurbishments and conversions. Two years in, the global credit crunch hit, but that proved a catalyst for growth. “It suddenly became very difficult to get finance from mainstream lenders” and property investors “appreciated the utility of the specialist market”, recalled Raja. He embraced clients rejected by high-street banks. “We look for reasons to issue a loan, rather than finding excuses not to.”

For all Paresh Raja's efforts to raise its profile, the firm remained “barely known outside its corner of finance”, says Bloomberg. In December, employees descended on the five-star Peninsula Hotel for a lavish black-tie Christmas event. It turned out to be a last hurrah. Alarmed by events in the US, MFS's creditors instigated extra checks on their loan books. In January, Barclays froze MFS's accounts, triggering the unravelling that prompted the firm's collapse. In 2025, Paresh Raja was named “Disruptor of the Year” by one media group. That now sounds distinctly ironic.

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Hundreds of thousands of mortgage holders facing higher monthly payments due to the conflict in the Middle East will be offered tailored support to manage costs.

The chancellor Rachel Reeves has secured a commitment from the six largest banks and building societies that they will proactively contact 1.6 million customers whose fixed-term deals are ending between now and the end of 2026.

Some of these include Nationwide, NatWest and Barclays. Customers will be offered bespoke support depending on their circumstances, which could include a mortgage term extension to lower monthly payments or a payment holiday where monthly payments are temporarily reduced or stopped.

Around 86% of all mortgages in the UK are fixed, according to the government.

The average mortgage rate has risen from 4.89% on 2 March to 5.50% by 25 March, increasing the typical annual cost of borrowing £250,000 over 25 years by £1,075, recent analysis by data analytics website Moneyfactscompare found.

Lenders have pulled hundreds of deals between them since the start of the conflict in the Middle East as swap rates, which underpin the price of fixed-rate mortgages, were driven up due to fears the Bank of England could hike interest rates in 2026 to combat rising inflation.

Reeves gets banks to reaffirm commitment to the Mortgage Charter

The Treasury has said the UK’s major banks and building societies will double-down on their commitment to the Mortgage Charter, which sets out how lenders can support customers facing higher mortgage costs.

Under the charter, mortgage holders can lock in a new fixed-rate deal with their lender up to six months before their existing one ends, and apply for a better deal if one arises after this point.

It also allows customers to switch to interest-only payments on their mortgage for six months and extend their mortgage term to reduce monthly payments.

Customers can take out these measures without the need for a fresh affordability check, which can lead to a new deal being declined, and there is no impact to credit scores.

Reeves said: “In uncertain times, people need clear reassurance and practical help. That’s why I’ve brought the biggest lenders together to step up support and make sure anyone who is worried can access the Mortgage Charter options quickly, without their credit score being affected.”

Move from Reeves a ‘positive step’

Damien Burke, head of regulatory practice at independent banking and credit advisory consultancy Broadstone, branded the chancellor’s move a “positive step”.

“[It] should help borrowers better understand their options well before their fixed-rate deals end, which can make a significant difference in helping households plan and manage higher repayments,” he said.

“At a time of macro-economic uncertainty, proactive communication and early engagement are often the most effective ways to provide reassurance and prevent short-term payment pressure from turning into longer-term financial difficulty.”

What fixed-rate mortgage holders can do now

If you’re coming off a fixed-rate mortgage this year and are facing higher costs, you can take proactive steps now to lessen the blow, rather than waiting for your lender to contact you.

The first thing to do is see what deal your lender will offer you six months before the existing deal ends, then compare that with what’s on offer from other lenders, said Nick Mendes, mortgage technical manager at broker John Charcol.

“Work out what the payment looks like in pounds and pence, not just in headline rate terms. A lot of people focus only on the interest rate, but the real question is whether the new monthly payment is manageable alongside everything else,” Mendes added.

If your monthly payments look unmanageable, you could see if you can trim your outgoings to free up funds or look at increasing the mortgage term to reduce your monthly payments.

Do note, increasing your mortgage term will mean you’ll pay more in interest as you’re repaying your loan over a longer period of time.

The worst thing to do ahead of your mortgage rate going up is nothing and then consequently missing a payment, Mendes said.

“The important point is not to miss a payment first and ask questions later. Lenders and regulators are both clear that borrowers should engage early, because that is when the broadest range of tailored support is usually available,” he explained.

A mortgage broker can help you if you’re set to come off a fixed-rate deal this year. They can guide you through the best deals on the market and help you decide whether a product transfer with your existing lender or remortgaging to another lender is the best option.

Note, a broker may charge a fee for their services. If they do, costs can vary from between £400 to £500, according to financial advice website Unbiased.

First-time buyers and the self-employed could benefit from more flexible mortgage rules from later next year, the Financial Conduct Authority has confirmed.

The City watchdog has been working on mortgage reforms for much of 2025 amid concerns about high interest rates and affordability requirements that are stopping people from buying a property.

The regulator already relaxed rules on interest rate stress tests in March 2025.

But the FCA has put forward a range of new measures that it will consult on early next year in a bid to give first-time buyers and the self-employed a step up onto the property ladder.

David Geale, executive director for payments and digital finance, said: “We have worked at pace this year to improve outcomes for customers wanting a mortgage.

“We’ll use insight from consumers and industry to drive further reforms and rebalance risk – helping to widen access to affordable mortgages to meet the needs of consumers today.”

Here is how mortgage rules could change in 2026.

Simplifying mortgage lending rules

Currently, borrowers have to navigate tough affordability assessments and interest rate stress tests when applying for a mortgage.

Borrowers with unpredictable income or who haven’t worked for long can find it difficult to get a home loan approved.

The FCA is trying to address that by introducing more flexibility into its lending rules.

One of the big issues is loan-to-income (LTI) ratios. Mortgage lenders have traditionally faced restrictions on how much they could lend above 4.5 times a borrower’s income. That can make getting a home loan harder when house price growth outpaces wage inflation.

In July 2025, the Financial Policy Committee (FPC) recommended that the FCA and the Prudential Regulation Authority allow individual lenders to increase their share of lending at LTI ratios of 4.5 or higher.

Many banks have already started boosting their LTIs and the FCA said it is working on a new policy that will be consulted on next year.

Other changes include ensuring mortgage lenders consider rental repayments as evidence of affordability.

The FCA said it will also look at supporting more payment flexibility beyond lenders just requiring “monthly payments” in their loan documentation, which could help self-employed people who have irregular income.

Interest-only mortgage lending changes

Interest-only lending has been curbed since mortgage rules were introduced on 2014 in the aftermath of the financial crisis.

An interest-only loan can be cheaper as there are no repayments but the rules currently require a credible repayment strategy. That has made lenders wary about approving loans on an interest-only basis, particularly to first-time buyers.

The FCA is now looking at the policy and said it will review rules on what a credible repayment strategy includes, such as the option to consider later life mortgages.

The regulator said: “This could potentially widen mortgage availability to certain underserved customers, including middle‑aged borrowers for whom a full repayment mortgage may no longer be viable.

“Instead, an interest‑only or part interest‑only loan could support house purchase, with a view to using a lifetime product later in life.”

Commenting on the proposals, Mary-Lou Press, president of the National Association of Estate Agents), said greater flexibility for first-time buyers, the self-employed, and those with non-traditional or later-life income has the potential to unlock home ownership for groups who have historically been underserved.

She added: “Moves to simplify rules, modernise affordability assessments and responsibly embrace innovation such as rental payment data and AI-driven advice could make a meaningful difference, provided robust consumer protections remain in place. The fact that the vast majority of mortgages remain out of arrears shows the current system is fundamentally sound, but also that there is room to carefully widen access without increasing risk.

“As affordability pressures ease and lenders adapt following changes to stress testing, reforms should be introduced in a measured way, alongside clear advice and transparency. Ensuring consumers fully understand their options, particularly around interest-only, part-repayment and later life lending, will be key to supporting sustainable home ownership both now and in the future.”

Equity release review

Equity release can help older borrowers access cash tied up in their property.

But the minimum age is 55, which the FCA suggests now potentially clashes with more people taking out mortgages later in life.

Equity release products have also faced criticism for high interest rates, low consumer awareness and a lack of competition among specialist advisers.

The FCA said it will conduct a market study to assess if equity release products can and will develop to meet the increased and differing needs of consumers in the future.

Geale added: “Reforming the mortgage market can help address the fact that as a society we’re saving too little for later life, yet people have huge wealth tied up in property.”

David Burrowes, chair of the Equity Release Council, added: “The FCA’s acknowledgement that housing wealth will play an increasingly important role in later life financial wellbeing is both timely and necessary. For many older homeowners, later life lending is no longer a niche option, but a practical and responsible way to support retirement income, manage debt, or remain in their own homes for longer.”

"The FCA’s roadmap highlights demographic change, longer mortgage terms and pension under-saving as structural challenges facing the UK, and signals further work to ensure the later life lending market is ready to meet growing demand.”

Plenty of influential investors have been trimming or offloading stakes in Nvidia as the AI boom draws a growing number of sceptics. But none has attracted attention quite as much as Michael Burry, says Bloomberg. The hedge funder, famous for correctly betting against the US housing bubble ahead of the 2008 financial crisis – as chronicled in Michael Lewis’ The Big Short – has become a fixation. “We’re obsessed with contrarian investors” who make “concentrated ‘hero bets’ on macro outcomes”.

Burry’s allure is especially strong among online retail investors, who have helped drive the values of firms such as data-intelligence specialist Palantir into the stratosphere, says the Financial Times. Hence the recent fury of the group’s “voluble” boss, Alex Karp, when Burry informed his 1.4 million followers on X that he had taken a sizeable $900 million short position on Palantir’s stock. Karp described Burry as “bat-crazy”. Yet arguably, he has had the last laugh. Within a fortnight, Burry announced that he is winding down his hedge fund Scion Asset Management – a measure of what a “brutal era” this has been for many bearish investors as the stock market has marched relentlessly higher.

Who is Michael Burry?

At 54, Burry stands out even among the colourful characters who are attracted to short selling. A self-described loner (who has nevertheless married twice) he told Michael Lewis that “my nature is not to have friends… I’m happy in my own head”. Born in 1971, and raised in San Jose, California, he lost his left eye to a rare form of cancer called retinoblastoma at the age of two and has worn a prosthetic eye ever since, says Investopedia. He later discovered he also has Asperger’s syndrome. After studying English, economics and medicine at the University of California, Burry was initially bent on pursuing a medical career. “However, his new hobby – picking stocks – engaged him more than the messy world of medicine,” says the FT. When his residency ended in 2000, he quit the profession and set up an investment firm, naming it Scion Capital, after The Scions of Shannara, a 1990 fantasy book by Terry Brooks.

Burry started out as a value investor, buying into unloved companies he felt were extremely undervalued. A lover of heavy metal, he developed a reputation as a head-banging, fiercely contrarian money manager. “If you are going to be a great investor, you have to fit the style to who you are,” he told Lewis. “The late ’90s almost forced me to identify myself as a value investor… I thought what everybody else was doing was insane.”

By 2005, he had trained his focus on what a collapse of the US housing market would do to mortgage bonds – later crediting his insights to his neurodiversity, says The Guardian. As he observed: “Only someone who has Asperger’s would read a sub-prime mortgage-bond prospectus.” Burry’s decision to bet against the mortgage market prompted anger from investors, who felt he was abandoning a profitable strategy. However, between November 2000 and June 2008, the fund returned 489%. Those investors who stuck with him made $700 million, while Burry made personal profits of $100 million.

Yet for many professionals, Burry’s performance since then has been “distinctly ho-hum”, says the FT. Burry, who has launched a new subscription newsletter called Cassandra Unchained, has seemingly retired from investing before – closing Scion Capital after his bets against subprime mortgage bonds paid off in 2008 before reopening as Scion Asset Management a few years later. As he wrote on X shortly before filing for the wind-down of his fund: “Sometimes we see bubbles. Sometimes, there is something to do about it. Sometimes, the only winning move is to not play.”

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The balance between the financial benefits of buying a home or renting is swinging back in favour of being a tenant, research suggests.

Homebuyers may have benefited from slower house price growth and falling mortgage rates in recent years to help them buy a property, but the Iran war and high inflation is putting pressure on the cost of borrowing.

Many mortgage lenders have hiked rates in recent weeks, with the average mortgage rate now back above 5%, as of 30 April.

Research by Rightmove suggests this has now made renting in Great Britain a cheaper option compared to paying a mortgage for the first time since June 2025.

The average advertised monthly rent across Great Britain is currently £1,547, Rightmove said.

This compares with an average new monthly mortgage payment of £1,670 – meaning on average renters pay £123 less per month.

The average mortgage payment uses the average asking price for a home of £373,971, the average two-year fixed rate of 5.35% in April, and assumes a 20% deposit and mortgage term of 30 years.Colleen Babcock, Rightmove’s property expert, said: “Mortgage payments have risen quite sharply in a short space of time for new buyers. It will be interesting to see whether more would‑be buyers turn to renting temporarily while rates remain high, particularly when monthly costs can exceed average rents and the timing of rate cuts is still unclear.”

Renting vs mortgage costs by region

With interest rates unlikely to be cut in the near future and mortgage rates remaining high, renting may be the better option for now in most parts of Britain.

Analysis by Rightmove found Scotland and the North East, where asking prices are lowest, are the only parts of Britain where a typical new mortgage is still cheaper than renting despite higher average mortgage rates.

Paying off a mortgage each month was £141 cheaper than renting in Scotland and £45 less in the North East of England.

London and the South East, where house prices are highest, have the largest gap between average mortgage and rental payments. The property website found renting was £362 and £363 cheaper respectively each month.

Looking at the data more locally, renting is cheaper than a mortgage in more than two-thirds of local authorities, Rightmove said.

The biggest gap was in Westminster, where Rightmove said it is £1,290 cheaper each month to rent than to pay a mortgage.

Those costs could come down though if buyers have a larger mortgage deposit and can find a lower rate.

While the monthly cost of renting may be lower than mortgage payments, there may be differences over the long-term, especially as owning a property typically gives you capital growth as well.

Exclusive analysis of mortgage and rental costs by Moneyfactscompare.co.uk for MoneyWeek in late 2025 found homeowners are £6,600 better off on average than renters when it comes to living in a typical UK home over the past 21 years.

Much depends on where you are on the property ladder.

Adam French, head of news at Moneyfactscompare.co.uk, warned there is a growing ‘two-tier’ property market.

One tier is a group of older homeowners who locked in the low rates of the 2010s and are enjoying the stability and growth of home ownership since buying as an asset, and another priced out, forced to rent for longer and missing out on the wealth-building benefits of ownership.

He suggested buyers who purchased early in the 2010s amid cheap credit and rising wages benefitted from both rising property values and low interest costs, a powerful combination for building wealth.

"However, renters saw little benefit," French said, "with rents rising rapidly to a higher level than typical mortgage repayments throughout the decade, meaning would-be buyers were trapped saving for ever-larger deposits and the affordability gap between renting and buying grew".

He added: "The long period of low rates effectively embedded this advantage as property wealth became the main engine of financial security for millions of homeowners.”

Is it better to rent or buy?

Cost is just one factor when deciding between renting and buying a property.

Renting gives you flexibility while owning a home gives you an asset that typically rises in value and can be more stable as you are in control of your own property.

But high inflation may limit the scope for further interest rate cuts, keeping mortgage costs high.

French said: “Many homeowners' monthly mortgage repayments exceed typical rents after average mortgage rates more than tripled following the Bank of England sharply increasing rates to combat inflation.

"This has dramatically reduced how much buyers can borrow, and house prices have softened as a result with the key dynamic remaining the same: the balance between rates and prices may shift, but the underlying strain on households’ budgets will eventually return to a tolerable range."

Little has changed for a growing number of renters though who are competing for a tighter supply of rental properties which is keeping rents at around the same share of income.

French said: "Not only is it as tough as it has ever been to save for a deposit, but now the immediate financial hit of taking out a mortgage has become even harder to justify.”

That may leave renting as the only option but French says this doesn’t have to be the poor choice it is often portrayed to be, adding: “In a high-rate environment, renting can offer flexibility, particularly for younger workers, those unsure of where they want to settle, or anyone stretching their finances to breaking point to buy.

“Without the burden of maintenance costs or exposure to the risk of falling house prices, renters may find that they can focus on saving or investing in other assets that may offer better returns over time.”

Mid-way through the renovation of his six-bedroom detached house in Oxfordshire, spiralling costs and mounting delays threatened to derail the transformation of Oliver Codrington’s family home unless he found a funding solution.

“It can feel desperate. You can end up in this position where you think, not only have I put everything into this property so far but it’s not going to give it back to me unless I put more money in,” said Oliver.

Oliver, 45, and his wife Joanna, 43, bought the property in March 2021 when sub-2% mortgage rates were still common and Rishi Sunak’s stamp duty holiday was saving households thousands of pounds on their move.

‘Black swan events swallowed my money’

“I stretched myself and bought a property I wouldn’t have bought under normal circumstances,” said the entrepreneur. “I then thought the renovation would be quick and easy and it turned out to be neither.

“Black swan events were going on all over the place. Brexit had just crystallised so there was a shortage of labour, the Suez Canal block tripled material prices – everything was costing a lot more and taking a lot longer as well. I just ran out of money.”

Living in rented accommodation with his wife and two children aged eight and six while the work was underway, the couple needed another £250,000 to complete the renovation of the £890,000 property.

“It was more than I could hustle together from friends, family and zero per cent credit cards,” he said.

Giving up was not an option, says Oliver. At that point he estimates the property would have been worth less than he paid for it so he searched for a solution to save his renovation from ruin.

Remortgaging was not an option. Having secured a 1.4% five-year fixed rate mortgage in March 2021, almost the last of its kind before rates began their march northwards, no mortgage broker or bank would recommend he ditch his ultra-low deal, despite his requests. Prevailing mortgage rates were around 5% at the time.

That’s when Oliver’s broker suggested they look at a second charge mortgage, an option he didn’t know existed, to raise the remaining finance he needed.

How does a second charge mortgage work?

A second charge mortgage is secured against your property. It ranks after your main mortgage on your title deeds.

In the event of a repossession, when the property is sold, your main mortgage gets repaid out of the proceeds first and your second charge lender gets paid last. Because there may not be enough money left from the proceeds of the sale to repay its debt in full, second charge lenders charge a higher interest rate to compensate for the risk.

Scott Clay, a director at property lender Together, said: “Second charges can be useful for raising money for home improvements, consolidating debts such as credit cards or personal loans, raising funds for a large purchase or, in some cases, for business purposes, such as paying a tax bill or legal expenses.”

You may be part way through your mortgage deal which has a low rate that you don’t want to lose. Or, you want to avoid triggering an early repayment charge by remortgaging before your deal expires. A second charge allows you to raise money against your home without disturbing your main mortgage deal.

But it comes at a cost. According to specialist finance broker The Loans Engine, second charge mortgage rates, sometimes called secured loans, range from 5.7% to around 12% depending on the lender and your credit profile.

Lenders typically cap their maximum loan at between 80% and 85% of your property’s value after your mortgage has been taken into account. The term can be stretched up to 30 years.

Most second charge loans are obtained through a specialist broker. The process for getting one is largely the same as a mortgage except that a second charge lender must apply to your bank or building society for consent to put another charge on your property.

Daniel Duggan, intermediary team leader at The Loans Engine, said: “Some first charge lenders may not give consent for a secured loan but that doesn’t always mean there's no options. We work closely with a panel of lenders, some of whom offer no-consent options so there may still be solutions available.”

‘Remortgaging was not an option for us’

Oliver and Joanna, a chiropractor, borrowed £250,000 at 10.4% in May 2023, but when rates started to fall they negotiated a lower rate of 8.6%.

Although the couple couldn’t get a remortgage due to the unwillingness of lenders to cut short the term of his 1.4% fixed deal, Oliver believes he would have been better off raising the extra cash this way.

“My point was, both my first and second charge rates blend out at around 5% so I would have been better off refinancing my first mortgage even if I was losing the best rate I was ever going to have in my lifetime,” he said.

Oliver was charged fees for arranging the second charge and an exit penalty will be charged when he sells up.

He doesn’t regret his decision, however. “I had no choice but to push on and borrow more because everything else was commercial suicide – you’d end up losing everything.

“I’d say to anyone else in our position, you have to find a way to solve the problem, it’s not relevant how you feel about it, you can’t dwell on anything and have to keep going.”

Risks to consider when taking out a second charge mortgage

Securing more debt on your property increases the risk that you could be repossessed if your financial circumstances worsen, making it difficult to pay both the first and second mortgage on time.

Although second charge mortgages can be stretched over a much longer term than a personal loan, 30 years compared to 10, it means you’ll pay a lot more back in interest over the long term.

Because you’re likely to be borrowing at a much higher interest rate than you would if you remortgaged to release the cash, it can put pressure on your household budget.

Oliver admits that the stress of two mortgages costing around £5,000 a month was a lot to bear and once the work was complete, the couple planned to sell.

“Almost as soon as we took the second charge, the writing was on the wall because we’re talking about the best part of £1 million of debt and I don’t feel that’s sensible.”

He remains positive about taking out the debt, however.

“It was debt that saved the day,” he added.

Oliver and Joanna transformed the property from a “rabbit warren” into an open plan home with a large kitchen with lots of space for entertaining. They quickly found a buyer and will sell the house for £1.73 million – an increase of £840,000, almost doubling its value.

After all debts are repaid, the couple will be £200,000 better off than when they started.

“I’m positioning it in my head that it’s not a bad result because I could have come out of this with a lot less than I had put in at many points. But I don’t think I’ve been paid for the stress.”

The number of “green mortgage” deals available to homeowners is growing – but how do they work, and who qualifies for one?

Most high-street lenders now offer some kind of green mortgage. They are usually focused on the energy efficiency of homes, and there are two main types.

The most common approach is to offer those buying a property with a high energy performance certificate (EPC) rating, typically A or B, a slightly better mortgage deal. For example, a lower mortgage rate, cashback or a cheaper fee.

The other type is an incentive for homeowners who want to improve the efficiency of their property. This could be a preferential interest rate for additional borrowing to fund things like solar panels or heat pumps, or cashback once the improvements are complete.

Last year, Virgin Money launched a retrofit mortgage offering borrowers up to £15,000 cashback to go green. This has now been reduced to £10,000.

Nicholas Mendes, mortgage technical manager at the broker John Charcol, tells MoneyWeek: “Ten years ago, there were hardly any green mortgages. Now more than half of lenders have one.” According to Moneyfacts, there were a total of 765 green mortgages on the market in mid-August.

Research by the Green Finance Institute, which launched the Green Home Finance Roadmap in August to encourage sustainability across the UK mortgage market, found that half of all homeowners would use a green mortgage to help them buy or upgrade to a more energy-efficient home.

With house prices rising, it makes sense to see if you could save money with a green mortgage, particularly if you’re buying an energy-efficient property, or would like to make home improvements like adding insulation, double glazing or solar panels.

About 1.5 million dwellings in England now have solar panels – nearly 6% of dwellings – according to Nationwide.

We look at how green mortgages work, who’s eligible, and whether they represent the best deal on the market.

How do green mortgages work?

A common misconception with green mortgages is that they are more environmentally friendly than conventional mortgages, or that the lender is “green”.

However, the “green” in green mortgages refers to the requirements needed to qualify for the deal.

“It does not mean that your mortgage lender will be investing your payments into green initiatives or schemes,” notes Terry Higgins, managing director of TNHG New Build Mortgages.

About 80% of UK homeowners admit they are not familiar with green mortgages and the benefits they offer, according to a survey by David Wilson Homes.

Higgins gives the following definition: “Green mortgages are designed to reward people living in energy-efficient homes or people carrying out green home improvements, and they can come with various benefits, including cashback, lower interest rates, and potentially the ability to borrow more."

Note that green mortgages have lots of different names, such as Green Reward, Green Living Reward and Retrofit Mortgage.

Who is eligible for a green mortgage?

Green mortgages aimed at home buyers are generally only available for properties with an EPC rating of A or B.

Some lenders will look at the standard assessment procedure (SAP) rating – the methodology behind the EPC – to determine if a property is eligible for its green mortgage.

For example, Nationwide offers a Green Reward for homes depending on their SAP rating. Those rated an SAP of 86-91 will receive £250 cashback and those above 92 receive £500 cashback.

Some green mortgages are restricted to new-build homes that are energy-efficient.

Mendes says that eligibility is a barrier with these products. “Most deals are limited to EPC A or B properties, which means new-builds dominate. Older homes rarely qualify, with fewer than 10% of pre-1900 houses even reaching a C rating,” he says.

In terms of cashback rewards for homeowners making energy-efficiency improvements, you usually have to have your mortgage with that lender to begin with. If you want to install, say, a heat pump or solar panels, you can then look to see if your mortgage provider is offering any cashback.

Some lenders offer lower interest rates or even interest-free borrowing for customers that want to fund green home improvements.

Before applying, you’ll need to check whether your home improvement meets the eligibility criteria, as well as any other terms and conditions.

What green mortgages are available?

Some lenders offer cashback to home buyers taking out their green mortgage.

David Hollingworth, associate director at the broker L&C Mortgages, highlights HSBC, which offers £350 cashback for energy-efficient homes with an A or B rating, while Halifax applies £250 cashback. Nationwide pays out cashback of up to £500.

NatWest offers an improvement to the product pricing, often offering deals with the lowest rates but with reduced fees. For example, it currently offers a two-year fixed rate at 3.88% for purchases up to 60% loan-to-value (LTV) with a £1,495 fee. Those buying a property with an A or B EPC rating can have the same rate but with a lower £995 fee, says Hollingworth.

Barclays offers green mortgages for new-build properties. It has a green deal five-year fix at 3.95% to 60% LTV with £899 fee.

On average, green mortgage rates are lower than standard mortgage rates.

For homeowners making energy efficiency improvements, Nationwide offers interest-free borrowing for two years or five years on a loan worth up to £20,000 for eligible green improvements. This includes a boiler upgrade, solar panels, air source heat pumps, cavity wall insulation, double glazing or replacement windows, electric car charging point and loft insulation. You need to have a Nationwide mortgage to apply.

Meanwhile, Coventry Building Society has preferential further advance rates for eligible improvements.

Halifax offers cashback of up to £2,000 to existing mortgage customers that complete efficiency improvements with its Green Living Reward. The maximum is paid out to those installing a heat pump, £1,000 cashback is paid out for solar panels or a battery, while £500 is awarded for other energy-efficient home improvements.

Virgin Money’s Retrofit Boost Mortgage is slightly different as it involves taking out a mortgage, with a higher interest rate than its standard products, and then getting up to £10,000 cashback that must be spent on eligible improvements to the property being mortgaged.

Is a green mortgage the best deal for me?

A green mortgage deal can look tempting, especially if it undercuts the mortgage rate on the lender’s other products, or perhaps offers a lower fee or some cashback.

However, against the wider market, it might not be the cheapest deal for you.

Mendes comments: “Day to day, we often find that while these products look competitive against a lender’s own range, they aren’t the very cheapest on the wider market. Many high-street lenders will beat competition on price, even without a green badge.”

Hollingworth echoes this: “It’s always important to consider the wider market rather than head straight for a green mortgage. Whilst it could offer a better option, there could still be lenders without a green badged deal that could be more competitive.”

While the Moneyfacts data shows that on average, green mortgages have lower interest rates than non-green deals, Rachel Springall, finance expert at the website, agrees that homeowners and first-time buyers shouldn’t immediately assume that a green mortgage is the best option.

“Green mortgages are a niche part of the mortgage sector and navigating them could be a bit tricky as some might not be the best package for a particular borrower. The incentives offered on green mortgages are mixed, so it would be wise for borrowers to go through the options with a broker,” she notes.

Looking ahead, government targets for net zero housing and lenders’ own pledges, such as NatWest and Nationwide aiming for half their mortgage books to be at EPC C or better by 2030, mean there will be more development in this space, according to Mendes.

“There is genuine momentum, although politics could shift the pace,” he says.

“Right now, green mortgages are more about signalling direction of travel than changing the game on affordability. If incentives strengthen through bigger rate discounts or government support, they could become a much more meaningful part of the market.”

Increasing numbers of borrowers face still paying off their mortgage in retirement, new research suggests.

Getting on the property ladder remains a challenge with high house prices even despite mortgage rates falling in recent months.

The Financial Conduct Authority (FCA) and the Bank of England have tried to boost the market recently by urging lenders to be more flexible and relaxing loan to income requirements.

But another way around affordability challenges is to borrow for a longer term.

A Freedom of Information (FOI) request from the FCA, analysed by Quilter, has revealed a significant rise in the number of people taking out mortgages with a term of 35 years or more.

These are often called marathon mortgages.

Its analysis found that in 2024, 30,338 mortgages with a term of 35 years or more were sold to people aged over 36.

Over a five-year period since 2019 there has been a 251% increase in the number of borrowers taking out longer loan terms. There has also been a 56% increase in the number of borrowers aged 31-35 taking out these lengthy loans.

This means many borrowers could still have a mortgage when they are in their 70s.

That may put extra pressure on your golden years, especially with the average retirement costs rising to £43,900 per year.

But Quilter suggests longer loans may not be such a bad idea.

The rise of marathon mortgages

The typical mortgage term for borrowers is 25 years but spreading out the cost over 35 can make more financial sense, especially with high mortgage rates and other bills rising, as it lowers the monthly repayments.

A 25-year £200,000 mortgage on a five-year fix at 5.01% would cost £1,170 per month. But moving the term to 35 years would reduce the monthly repayments by £160 to £1,010.

That may not seem like much, but over five years a borrower would have been able to keep £9,600.

The figures suggest that increasing numbers of older borrowers have been doing this since 2019.

In 2024, 90,616 borrowers aged 31 to 35 took out a mortgage with a term of 35 years or more, up 8.5% annually, the research shows. There were 30,338 borrowers aged above 36 – up 42.5% annually.

Are marathon mortgages loans risky?

There have been warnings from analysts such as former pensions minister Steve Webb that these longer term mortgages represent a risk to retirement.

There is a rather big financial risk as 35-year mortgages will be more expensive over the long-term.

The same £200,000 mortgage would cost £351,103 over 25 years and £424,473 with a 35-year term.

That’s a £73,370 difference.

But Zara Bray, mortgage expert at Quilter, says this doesn’t necessarily need to be viewed negatively especially as there will be opportunities to remortgage to lower rates and shorter terms, plus borrowers can overpay some of their mortgage if they have spare cash.

Retirees could even downsize to help pay off the mortgage.

Bray said: “Given the majority of mortgages are supported by a mortgage adviser, this is a positive example of advice enabling customers to remain in their homes during difficult macroeconomic conditions.

“Extending your mortgage past retirement age may be a sensible lever to pull in the short term, allowing other assets to remain invested. However, the key to avoiding challenges with a long-term mortgage later in life is to regularly speak to your adviser, as they will be actively scanning the market for improved rates or new innovative products that address the affordability strain – providing more options at the end of your fixed term.”

The average monthly cost of renting a home in the UK has risen by £221 in three years, outpacing the increase in mortgage payments over the same period.

According to property website Zoopla, the average repayment on outstanding mortgages, pushed up by higher mortgage rates, has only increased by £218 a month.

Renters also tend to pay more than homeowners. Average rents in the UK currently sit at £1,283 a month, with typical mortgage repayments sitting at £1,154.

The 21% rise in rents since 2022 is due to demand for rented homes growing rapidly during 2022 and 2023 while the stock of private rented homes remained broadly static due to low levels of new investment by buy-to-let landlords.

Richard Donnell, executive director at Zoopla, points out that there’s been a big focus on interest rates rising and the impact on homeowners with mortgages - but that tenants have also faced steep increases in their costs.

“A shift to higher mortgage rates raised alarm over how mortgagees would be able to afford higher repayments over the last three years. The sales market has been resilient thanks to mortgage regulations that ensured borrowers could afford higher mortgage rates,” he comments.

“Renters have faced similarly steep increases in the cost of renting in recent years with rents pushed higher on strong demand and limited supply of homes for rent, which has hit lower income renters hardest.”

However, rent increases have slowed considerably. Last month, Zoopla said that rents are rising at their slowest pace in four years as tenant demand cools and affordability pressures start to bite. Average UK rents increased by 2.8% in the 12 months to April - less than half the 6.4% recorded last year.

Which UK areas have seen the biggest increase in rents?

Some local areas have seen particularly rapid increases in rents over the past three years as rental demand has run ahead of the growth in rental supply.

In places like Oldham, Wigan and Bolton, rents have surged by more than 31% in three years as rents rose from a relatively low base.

Rents are highest in London, with parts of the capital registering the largest monetary increases, up by £400 a month over the past three years. The biggest rental growth has been in more affordable areas in outer London, such as Ilford in east London.

Source: Zoopla Rental Index 2025

Why have rents risen so much?

The rise in the costs of renting since 2022 is down to a surge in rental demand in the wake of the pandemic.

According to Zoopla, a strong labour market and higher levels of migration for work and study have boosted rental demand. Mortgage rates spiked over 2022 and 2023, making it harder to buy homes, so many first-time buyers remained in the rental market for longer. This further boosted demand while also suppressing supply, pushing rents higher.

Robust growth in average earnings over the past three years has supported the faster growth in average rents. However, private renters on lower incomes and those relying on state support have faced a greater squeeze on living costs from higher housing costs.

Earlier this month, the government’s English Housing Survey revealed that on average, private renters spend 34% of their income on rent, while those with mortgages spend 19%.

Sarah Coles, head of personal finance at Hargreaves Lansdown, notes: “The eye-watering cost of rent is devouring huge chunks of people’s income, making it incredibly difficult to build a deposit – it’s no wonder millions of people risk being stuck in the rental trap.”

Donnell at Zoopla notes that rental inflation is now running at its lowest rate for four years, due to less migration for work and study, and improvements in mortgage market conditions for first-time buyers.

Last week, the government announced a new 95% mortgage guarantee scheme, which should help first-time buyers and home movers with small deposits.

However, Donnell warns that rents will remain high. “The stock of homes has remained static for almost a decade due to low investment by landlords. A continued supply/demand imbalance is keeping a steady upward pressure on rents”.

Chancellor Rachel Reeves has announced a new, permanent mortgage guarantee scheme, helping to support homebuyers with a deposit as small as 5%.

The announcement comes on a busy day for the Treasury, which has also unveiled investment rule changes as part of the so-called Leeds Reforms, and ahead of Reeves’s Mansion House speech this evening (15 July).

Banks and building societies have previously had a backstop from the government to ensure they give low-deposit mortgages to first-time buyers. The chancellor says that scheme will be made permanent, honouring a promise made in the Labour manifesto.

The government also said that more mortgages will be available at over 4.5 times a buyer’s income following Bank of England recommendations that some lenders offer more high loan-to-income mortgages. It claims that this will create up to 36,000 additional mortgages for first-time buyers over the first year.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, comments: “The much-anticipated replacement of the Mortgage Guarantee Scheme [...] should create a positive sentiment in the market and is designed to encourage more lenders to cater for borrowers with small deposits.

“As it stands, there are still very few deals on the market aimed at first-time buyers with just a 5% deposit, so any boost to product availability should be welcomed.”

Brian Byrnes, head of personal finance at Moneybox, says it’s “encouraging to see steps being taken to support first-time buyers”. However, he adds that the government should also focus on “meaningful, long-term support to help them start saving and investing earlier in life so they can build up that all-important deposit”.

What is Labour’s mortgage guarantee scheme?

The government’s new mortgage guarantee scheme will be available to lenders from this month (July 2025).

Eligible first-time buyers and home movers will be able to use it to buy a home with a deposit as small as 5% throughout the UK.

The Treasury says: “The government recognises the difficulties that many aspiring homeowners face in getting on the housing ladder – in particular, the challenge of raising a sufficient deposit for a home.

“The new mortgage guarantee scheme [aims] to incentivise and sustain availability of 91-95% loan-to-value mortgages by providing participating lenders with a government-backed guarantee, insuring them against a portion of their potential losses on those mortgages.”

Guarantees will be valid for up to seven years after the mortgage is originated.

Participating lenders will pay the Treasury a fee for each mortgage entered into the scheme. This will be regularly reviewed so that expected claims against the guarantee should be covered by revenue from the fee.

The new scheme replaces a mortgage guarantee scheme set up by the previous Conservative government, which closed at the end of June.

Springall comments: “Not everyone can be reliant on the ‘Bank of Mum and Dad’ to get a foot onto the property ladder, such as with a guarantor mortgage. This is why it’s so fundamental for lenders to support buyers with small deposits, to keep the market moving.

“HM Treasury has also stressed any losses incurred through the scheme would be low, and that there is a cap on the size of the government’s contingent liability of £3.2 billion.”

What else has been announced for home buyers?

The chancellor also said that more mortgages will be lent at over 4.5 times a home buyer’s income, meaning some customers will be able to borrow more.

Currently, just under 10% of new mortgages issued exceed 4.5 times a borrower's income. The Bank of England said last week in its Financial Stability Report that it was happy for that percentage to rise – although it still wants to ensure that no more than 15% of new mortgage lending across the industry is above 4.5 times loan-to-income.

The Bank’s report also warned that millions of mortgage holders are set to see their payments rise, as they roll off lower-rate deals onto more expensive ones. It calculates that homeowners face an average rise of £107 a month as their current deals end.

The increase of lending at more than 4.5 times income means that Nationwide will be able to make its “Helping Hand” mortgage – which offers lending of up to six times’ income – available to people with lower incomes.

From tomorrow (16 July), eligible first-time buyers can apply for the mortgage with a £30,000 salary, down from £35,000, and joint applicants with a £50,000 combined salary – down from £55,000. This is expected to support an additional 10,000 first-time buyers each year.

Henry Jordan, Nationwide’s director of home, says the government announcement “unlocks lending for first-time buyers at what remains a difficult time for homeownership”.

Reeves says she welcomed the changes to the loan-to-income limit on mortgage lending, and that it would have “an instant impact for consumers”.

Meanwhile, the Treasury also committed to a review of Financial Conduct Authority lending rules that could allow a prospective buyer’s record of paying rent on time to show they can afford mortgage repayments.

Problems with the mortgage guarantee scheme

The government says the permanent mortgage guarantee scheme will help those with small deposits buy a home.

But, Rob Houghton, founder and CEO of Reallymoving, a comparison site for home movers, says that is only half the problem.

“There are two main barriers to home ownership: firstly, the deposit, and secondly, affording the repayments. The problem with this scheme is it solves one but exacerbates the other, because buying with a 5% deposit leaves you with a 95% mortgage to service,” he explains.

Increasing supply is the only way to make home ownership more affordable in the long term, he adds, “and we’re yet to see any dramatic increase in housing starts”.

Millions of mortgage holders are set to see their payments rise, according to the Bank of England, as they roll off of lower-rate deals onto the more expensive ones now available.

Homeowners can expect to see their mortgage costs increase by an average of £107 a month as their current deals end.

Mortgage rates have fallen in recent months, with major lenders like Halifax, HSBC and Barclays cutting deals in the last few weeks. But for homeowners on longer-term fixed rate mortgage deals, rates will still be higher when they come to remortgage.

The Bank of England has calculated 3.6 million mortgages are due to be renegotiated during the next three years, amounting to 41% of all outstanding home loans.

The findings, included in the Bank’s latest Financial Stability Report, are better than previously expected for homeowners. The number of mortgages facing expiry is lower than the Bank had initially forecast, and the monthly increase to mortgage payments is less than the £146 it expected.

There have been four interest rate cuts since last August, and these are slowly feeding into lower mortgage payments, as even though mortgage rates are falling many people have already remortgaged onto higher rates.

Around 2.5 million households, or 28% of mortgage holders, will see their bills fall in the next three years, according to the Bank’s calculations.

Higher loan-to-income mortgages

Elsewhere in the Financial Stability Report, the Bank gave home buyers a boost by saying mortgage lenders could lend to more people at higher loan-to-income ratios.

At present just under 10% of new mortgages issued were above 4.5 times a borrower's income. The Bank has said it would be content for that percentage to increase.

It has recommended allowing individual banks and building societies to issue more than 15% of their new mortgages at higher than 4.5 times loan-to-income.

But industry-wide, the Bank still wants to make sure the amount of lending above 4.5 times incomes stays below 15%.

Nationwide, one of the country's biggest lenders, welcomed the move. "It will help people who struggle to get on the property ladder because high rents and living costs have made saving for a deposit and meeting mortgage affordability tests extremely challenging," said Dame Debbie Crosbie, Nationwide's chief executive.

The Bank of England's recommendation comes after a call by the UK government for regulators to look for ways to encourage economic growth.

Up to 36,000 new higher loan-to-income mortgages a year could be accepted as a result of the change, by the Bank’s calculations.

End of the Bank of Mum and Dad?

The move could come just in time for some homebuyers, as the Bank of Mum and Dad looks like it is being wound up as they enter retirement and start to live on a pension.

Almost half (49%) of people want to be able to support family members financially in retirement – but only 28% think it’s a realistic aim, according to a recent survey by wealth firm Hargreaves Lansdown.

Those aged 55 and over are less likely to want to help their family (44%) and less likely to think it’s realistic (22%).

Only 30% of people don’t think they’ll be able to help, and don’t want to, but this rises to 36% of those aged 55 and over.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The Bank of Mum and Dad could be forced to close in retirement.

“Unfortunately, when we’re on a lower income after finishing work, it becomes much harder to help out financially. It means we need to consider how we can support our family at various stages in life, and when – if ever – the Bank of Mum and Dad can shut up shop.”

Mortgage and loan providers have rallied together to urge the chancellor to leave the cash ISA limit unchanged at £20,000, saying a reduction would make lending more difficult and expensive.

In an open letter, the Building Societies Association (BSA) wrote to Rachel Reeves to express their “concern” over rumours that the cash ISA limit could be reduced.

It said that while cash ISAs form a key part of an individual's savings as a place to let their cash grow tax-free, deposits stored in them are also an “an important source of funding for banks, building societies, credit unions and other providers”.

These financial institutions then use the deposits to fund loans to households and businesses, with the BSA saying that cash ISAs help keep mortgages and loans “affordable and accessible”.

The association warns that a big cut in the cash ISA limit could therefore “lead to higher borrowing costs and reduced access to credit across the economy”.

“This would undermine efforts to stimulate economic growth, including the government’s commitment to delivering 1.5 million new homes,” it added.

The BSA also warned that a lower cash ISA allowance would send a discouraging message to savers who are using it to plan for the future, as well as “undermining a product that has stood the test of time”.

Since the start of the year, speculation has been mounting over whether or not the chancellor will reduce the amount of your tax-free ISA allowance that you can direct towards cash savings.

Reports suggest that Reeves and her team in the Treasury have been exploring the idea of reducing the cash ISA limit to as low as £4,000 to incentivise Brits to put their ISA savings into the stock market.

The move would come at a time when UK plc is feeling unloved, and the London Stock Exchange is struggling to keep up with its American cousins.

While the Treasury has neither confirmed nor denied that the cash ISA limit will be reduced, the chancellor said earlier this year that she wanted to encourage a “culture of investing” in Britain, like there is in the United States.

Reeves also told the media that she wanted to “get the balance right between cash and equities to earn better returns for savers” in their ISAs.

Reeves could announce reforms to the cash ISA at her Mansion House address on 15 July.

Will reducing the cash ISA limit make it more difficult to buy a home?

As outlined in the open letter, the BSA argues that a reduction in the cash ISA limit will lead to fewer deposits being made with lenders. With fewer deposits, the building societies argue that they will find it more difficult to provide loans and mortgages as they will have less money to give out.

Chris Irwin, director of savings at Yorkshire Building Society, supports this point, telling MoneyWeek that combined cash ISA balances in the UK amount to more than £300 billion and that a reduction to the cash ISA limit would lead to “significant wider impacts”.

Irwin says many financial institutions use cash ISA deposits to fund mortgages and loans to households and businesses.

“Cash ISA deposits underpin the UK mortgage market and represent a direct investment in the UK economy. Reducing ISA deposits could make mortgages more expensive and less available.”

Irwin adds that cash ISAs make up 39% of all building societies’ retail savings balances, providing a “vital source of funding to allow us to offer more mortgages to those that need them”.

With such a large proportion of deposits being held in the tax-free savings products, a reduction in the limit could severely restrict lending activities.

He also warns that a reduction in the cash ISA allowance will jeopardise the government’s headline ambition to build 1.5 million new homes as “cutting ISA limits could make that more difficult and have a significant impact on economic activity.”

Cecilia Mourain, chief homebuying and savings officer at the savings and investing app Moneybox, agrees that a cut to the cash ISA allowance would be the wrong move by the government.

Mourain argues that the move will “discourage sensible saving behaviour, weaken demand for a popular product and disrupt the flow of capital that supports mortgage lending and economic stability”.

Moreover, Mourain says that such a reform would not support the government’s ambition to build a stronger investing culture.

“We know that a cultural shift towards investing won’t come from cutting the cash ISA allowance, it will come from working with the industry to build confidence among savers,” she adds.

Most people’s objective is to pay off their mortgage before they retire, but there are some instances where borrowing in later life could be appealing.

You might want to retire to an area where homes are slightly more expensive, release funds to pay for home improvements, or move from rented accommodation into a home of your own.

You might even be weighing up whether a buy-to-let property could supplement your retirement income.

Getting a mortgage in retirement could come with challenges though. The most obvious one is whether you can afford the interest and repayments if you aren’t earning a salary.

Another is whether the bank will agree to loan you the money in the first place.

A mystery shopper exercise conducted by the Family Building Society found instances where older borrowers with “secure incomes” were being refused the mortgages they “wanted and could afford”.

The building society designed three scenarios with hypothetical applicants aged 67-84, and three mirrored versions with younger applicants aged 42-55. Multiple calls were made to each mortgage provider, with the test involving 72 enquiries in total.

All of the older borrowers’ applications were rejected by the big six lenders – Lloyds, NatWest, Barclays, HSBC, Santander and Nationwide.

Most of the requests were rejected on the grounds of age or only considered on a reduced mortgage term so that the borrowing would end before the lender’s upper age limit, significantly increasing the monthly repayments.

The Family Building Society has criticised the big six lenders for discriminating on the basis of age, arguing that older buyers with “solid pension pots” may be “more secure than those of working age, who could be made redundant with little warning”.

However, with pension savers living longer than ever before and many having to stump up for care costs in later life, there are risks when signing yourself up to debt.

Were the banks right to refuse older savers a mortgage – and is signing yourself up to a mortgage in retirement always a bad idea?

Steve Webb: It depends what sort of income retirees are able to pledge

One of the scenarios highlighted by Family Building Society in its mystery shopper exercise was a married couple, where the husband was 84 and the wife was 67.

They had a joint annual income of £60,000, and were looking to borrow £85,000 for a 10-year term against a £518,000 property – a loan-to-value ratio of less than 17%.

All of the big six high street lenders refused the application, according to the Family Building Society’s survey.

This might seem surprising given the couple’s generous retirement income and the small size of the loan relative to the property.

However, as former pensions minister Steve Webb points out, a lot depends on the nature of that income.

Webb, now a partner at consultancy Lane Clark & Peacock, told MoneyWeek: “In principle, someone with a secure income from the state pension plus a final salary workplace pension can be relied upon to pay a regular cost like a mortgage.

“Indeed, in many ways, their income is more secure than someone in work who could lose their wage due to unemployment or sickness.

“But problems could arise if a joint mortgage is issued and the person with the company pension dies. Their surviving spouse would have unchanged mortgage costs but a drastically reduced income and potentially be unable to service the debts.”

Savers already at risk of pension shortfall

A defined contribution (DC) pension – the most common option for younger savers – would be even less secure as a source of income.

With this sort of pension, you are not guaranteed a specific amount of retirement income. The size of your pot depends on how much you paid in during your working life, and how your investments have performed.

You can buy an annuity but, even then, the amount of income this pays out will depend on how much your pension pot is worth.

This means there is a far greater risk that savers will run out of money before they die.

Many underestimate how much they will need in retirement, how long they will live, and how much things like care will cost them.

For example, a £1 million pension pot sounds like a very nice sum, but analysis from wealth manager Brewin Dolphin shows that a 66-year-old retiring with a pension of this size would only be able to draw an income of £63,000 a year until age 86.

If the saver were to live to 95, they would only be able to draw an annual income of around £50,000.

This is enough to live comfortably but not necessarily in the lap of luxury, particularly if you are still paying housing costs like mortgage repayments.

For context, the latest figures from the Pension and Lifetime Savings Association (PLSA) show the cost of a comfortable retirement is now £43,100 per year for a single person and £59,000 for a couple, excluding housing costs.

Renting in retirement isn’t ideal either

As with any financial decision, the pros and cons of taking out a mortgage in retirement will depend on your personal circumstances.

If you are taking the loan to fund home improvements or to relocate to a more expensive area, you might not feel the trade off is worth it when you consider the knock-on effect on your retirement income.

If you are currently renting and want to move into a home of your own as you enter your golden years, you might feel there is more of a case for it.

The FCA’s director of retail banking Emad Aladhal recently pointed out that “average mortgage payments are currently 20% lower than rental costs”, meaning that “renting in retirement could require £400,000 more in savings than owning a home”.

Again, a lot will depend on the size of the mortgage you are intending to take, the size of your deposit, and your monthly retirement income.

What about buy-to-let?

As we explore in a separate “pension versus property” piece, it is generally a bad idea for savers to neglect their pension in favour of buying a second home.

One of the reasons is that pensions offer valuable tax relief, while investment properties do not.

Furthermore, some of the tax perks that used to be available on buy-to-let homes have been dialled back in recent years, as the government sought ways to boost tax revenues and free up the housing market for first-time buyers.

These arguments all centre around those who are still saving for retirement – but what about those who have already crossed the rubicon?

Many retirees like the idea of having rental income to supplement their pension savings. With this in mind, is there ever a case for taking out a buy-to-let mortgage to purchase an investment property?

Some of the considerations will be the same as those outlined previously, although many buy-to-let mortgages are interest-only products. This means you won’t have to repay the capital.

Despite this, prospective borrowers may still have a tough time persuading lenders to overlook their age.

“Although the borrowing amount will be mostly based on the rental income covering the mortgage interest by a certain margin, many lenders will have a maximum age limit at the end of the mortgage term,” said David Hollingworth, associate director at broker L&C Mortgages.

“That will vary from lender to lender with many expecting the mortgage to be repaid by age 80 or 85. However, some will have more flexibility and may not apply any age limit at all, so there should be options.”

Hollingworth points out that gaps between tenants – void periods where no rent is being received – are another big consideration. “If there’s no rental income coming in, the mortgage will still need to be paid, so rather than boosting income it could put pressure on the monthly income,” he said.

Stamp duty costs are another thing buyers would need to stump up for. It is worth considering these costs and how they could erode your returns.

We look at how much stamp duty you need to pay on buy-to-let properties in a separate piece.

Donald Trump’s “Liberation Day” tariffs may have spooked global stock markets but there is a silver lining for mortgage borrowers.

The turmoil from the tariff policy has raised expectations that UK interest rates could be cut further this year, and some mortgage lenders have already started reducing their rates.

TSB said it will cut some two-year fixed-rate mortgages by up to 0.25 percentage points, while Clydesdale Bank is trimming selected deals by up to 0.64 points.

Other lenders like Skipton Building Society, MPowered Mortgages and Gen H have also cut some of their mortgage rates.

The cheaper mortgage deals comes as stock markets suffer their biggest drops since the pandemic as the impact of new US trade tariffs are digested.

The FTSE 100 fell 10% while the S&P 500 was down 9.1% last week as the higher costs raised fears of rising inflation and even a recession.

But while investors may be getting nervous, swap rates - a major factor in the pricing of mortgages - have dropped since last week.

Laith Khalaf, head of investment analysis at AJ Bell, commented: “Trump’s tariff announcement might have created havoc in the stock market, but there could be a silver lining for UK mortgage borrowers. Interest rate expectations are falling as markets price in the potential economic damage from US tariffs.

“The market had been pricing in two interest rate cuts this year, but in short order that has now been ratcheted up to three, which would take the base rate to 3.75% by the end of 2025."

We look at what's happening in the mortgage market, and whether rates will continue to drop this year.

What is happening with mortgage rates?

Mortgage rates had already fallen in recent weeks off the back of the Bank of England’s interest rate cut in February.

The average two-year fixed-rate mortgage is currently at 5.3%, according to Moneyfacts, while the average five-year deal is priced at 5.15%.

That compares with 5.52% and 5.32% respectively at the start of February.

Meanwhile, five-year SONIA swaps in the UK are now at 3.6%, compared with 3.9% at the start of March.

Rachel Springall, finance expert at Moneyfacts, told MoneyWeek that mortgage rates are expected to come down in the coming weeks as swap rates have been on a downward trend.

“Lenders use swap rates to determine where they should price their range, so when these fall due to other market influences, it could spell good news to the millions of borrowers due to refinance this year.”

Riz Malik, independent financial adviser at R3 Wealth, said Trump's latest moves may have unintentionally created a short-term opportunity for UK borrowers, particularly if the global fallout deepens.

He added: “With China already retaliating and others likely to follow, the ripple effect could drive swap rates down a lot more and bring a wave of sharper mortgage pricing. This week could be one of the best weeks in years on the mortgage front."

According to Andrew Montlake, managing director at the mortgage broker Coreco, given the sharp drop in swap rates, "some might be surprised that lenders haven’t acted sooner".

However, he added that lenders have likely been waiting to see if the market uncertainty calms. "If one of the big six lenders comes out with some sizeable cuts, then we could see a mini rate war break out. That said, we still do not expect massive drops given the volatile market and the potential for a sudden change of direction from the White House."

Which mortgage lenders have cut their rates?

TSB is reducing some of its rates today (9 April). Its two-year fixed deal for first-time buyers and home movers with a 75-85% loan-to-value (LTV) will drop by 0.25 points.

Meanwhile some of its product transfer and additional borrowing rates will fall by 0.05 points.

Clydesdale Bank is also cutting some of its deals today. For example, its residential 85%-95% two and five year core rates will be reduced by up to 0.64 points. And its 85%-90% two year professional rates will fall by up to 0.2 points.

According to Springall at Moneyfacts, Skipton Building Society reduced rates by up to 0.29 points and Bank of Ireland UK by up to 0.19 points on 7 April.

Other lenders like MPowered Mortgages, Gen H and Pepper have also made cuts to their mortgage rates over the past few days.

How low could mortgage rates go?

Montlake at Coreco thinks we could see "mortgage rates starting with a three once more".

He added: “Much depends on the length of time Trump holds his current position, and the erratic nature of decisions coming from Washington mean that the market will remain in a capricious state. Lenders may therefore be reluctant to move too quickly and adopt a wait and see approach.

“I expect we will see lenders cutting rates and the Bank of England reducing in May, but how long this all lasts remains to be seen”.

The Bank of England's Monetary Policy Committee's next interest rate meeting will take place on 8 May.

Springall noted: “At this stage it is hard to tell whether lenders will make any signification knee-jerk reactions to rate pricing, as we may instead just see a small flow of tweaks as lenders compete for business over the coming days.

“It traditionally takes a couple of weeks for lenders to respond to swap market volatility, but usually once a notable brand moves to cut mortgage rates, others follow suit. There are a couple of lenders already offering sub-4% mortgages today, but the pool of these could widen if swap rates continue to drop from their current levels.”

According to Imran Hussain, director at Harmony Financial Services, now could be a good time to remortgage or secure a mortgage deal if you're looking to buy a house.

"Amid all the chaos in the markets, the weeks ahead could be a perfect time for those who are looking to purchase a property or those whose fixed rates are coming up for renewal within the next six months. People should speak to their brokers ASAP, as this could shape up to be a fast-moving market."

However, homeowners and first-time buyers should note that any reduction in mortgage rates could be outweighed by household bills like council tax, water bills and energy bills going up this month.

Montlake added: “Whilst these rate cuts may be a blessing for many with a mortgage or looking to buy, it reflects the expectation of a weaker economy and less growth due to the trade wars, which could result in a much weaker jobs market and certain companies laying off workers, which will be of concern."

The UK housing market faces uncertainty over economic and political issues and is starting to lose momentum, according to the latest Royal Institution of Chartered Surveyors (RICS) survey.

While house prices rose overall last month, buyer demand weakened. The survey, which polls estate agents and other property professionals, revealed a net balance reading of -14% for buyer demand in February, down from -1% in January. It marks the weakest reading since November 2023.

RICS said that the upcoming changes to the stamp duty thresholds are impacting decision-making, which is contributing to the slowdown.

From 1 April, stamp duty will be due on homes costing more than £125,000 (£300,000 for first-time buyers). Currently, the tax is only due on properties worth more than £250,000, or £425,000 for first-time buyers.

According to Coventry Building Society, the stamp duty hike means that someone buying an average-priced home in England will have to fork out an extra £2,500 in tax.

Geopolitical and international economic uncertainties are also leading to a less favourable climate for the housing sector.

Simon Rubinson, RICS chief economist, comments: “The UK housing market appears to be losing some momentum as the expiry of the temporary increase in stamp duty thresholds approaches. Some concerns are also being expressed by respondents about the re-emergence of inflationary pressures and the more uncertain geopolitical environment.

“That said, looking beyond the next few months, sales activity is seen as likely to resume an upward trend with prices also moving higher.”

UK inflation rose by more than expected in January to 3%, up from 2.5% in December. US president Donald Trump’s tariffs are also causing concern on both sides of the Atlantic.

Tom Bill, head of UK residential research at the estate agency Knight Frank, says there has been “a mood of risk aversion in global financial markets and among UK homebuyers in recent weeks”.

He adds: “Trump’s erratic trade policy and increases in German defence spending are two reasons beyond the control of the government that most UK mortgage rates remain above 4%, which is keeping demand in check.”

The average two-year fixed residential mortgage rate is 5.35%, according to Moneyfacts. The average five-year rate is 5.19%.

What’s going on in the UK housing market?

The RICS survey shows that house prices at a national level continue to rise overall, albeit at a subdued rate.

The latest net balance for house price growth came in at +11%, which remains consistent with a subtle upturn in prices. However, this has moderated in each of the last two months, easing from +25% and +21% in December and January, respectively.

House price indices also highlight a slowing property market. According to mortgage lender Halifax, house prices fell by 0.1% on a monthly basis in February, after growing 0.6% in January.

RICS says that while respondents welcomed the recent interest rate cut by the Bank of England (on 6 February), “there is an appetite for the Bank to go further”.

Tomer Aboody, director of specialist lender MT Finance, notes: "Although we have seen a confident market over the past 12 months as buyers make their move due to a better interest rate environment and lower inflation, both buyers and sellers are hoping for further cuts in coming months.

“While sales volumes are up, they are still well below historical figures and some intervention will be needed in order to inject more life into the housing market.”

Looking to the future, most RICS respondents believe that house prices will rise over the next 12 months. Indeed, the net balance for the year-ahead price expectations series sits at +47%, broadly in line with the average reading posted over the past six months.

Rubinson comments: “A key support for the market continues to be the increased flow of existing stock becoming available, giving property buyers a greater choice of options. However, leading indicators around new build remain subdued for now.”

According to Bill at Knight Frank, there is also uncertainty around what measures the government may announce in this month’s Spring Statement, as well as the inflationary impact of any policies.

He adds: “Markets still expect two Bank of England rate cuts in 2025 and we still believe there will be single-digit house price growth, but some caution is understandable.”

What’s happening in the rental market?

Lettings demand has reduced again, according to RICS, but the availability of rental properties has dropped at a faster rate, leading to more rent price increases.

Tenant demand recorded a figure slightly below zero for the fourth month in a row, returning a net balance of -4% in February. RICS says this points to a broadly stagnant trend rather than an abrupt downturn.

Alongside this, landlord instructions continue to show negative momentum, registering a net balance of -22%.

Despite the subdued demand backdrop, a net balance of +34% of survey participants foresee rental prices rising over the coming three months.

Rubinson comments: “Despite a flatter trend in demand for private rental properties, the key RICS metric capturing rental expectations is still pointing to further increases demonstrating that the challenge around supply spans all tenures.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, adds: "Affordability is still acting as a check on rent rises but, lack of supply particularly of smaller flats and houses, has certainly prevented more substantial reductions in activity over the past few weeks.”

Mortgage lending rules could be relaxed to help more first-time buyers onto the property ladder and boost the economy.

Chancellor Rachel Reeves has been seeking ideas from financial regulators on how to boost the economy amid concerns about the UK’s prospects due to higher taxes announced in the Autumn Budget.

It comes as UK GDP came in at just 0.1% for November.

One idea that has reportedly been put forward by regulators is relaxing the rules on mortgage lending so that banks would be able to provide more high-loan-to-value loans.

The Financial Conduct Authority (FCA) said in a letter to the government that it would "begin simplifying responsible lending and advice rules for mortgages, supporting home ownership and opening a discussion on the balance between access to lending and levels of defaults."

High house prices and rising mortgage rates in recent years have locked many buyers out of the property market.

There are also worries that the drop in stamp duty thresholds in April could push up purchasing costs and make it even harder to own a home.

Charles Roe, director of mortgages at UK Finance, said: "Reviewing the mortgage lending rules would help with affordability issues, not just for first-time buyers but also those looking to move further up the housing ladder.

“Banks will always lend responsibly but the current rules are restricting the number of people who can get a mortgage and so could be relaxed.”

What changes are being proposed to mortgage lending?

Currently, banks are limited to only lending 15% of their mortgage book to those whose property is worth 4.5 times their income.

That can make it hard to secure large mortgages and buy a property, especially if you have a low-paid job.

Additionally, banks have to follow strict affordability tests to make sure borrowers can afford their loans.

Financial regulators are reported to have suggested relaxing these rules to boost lending.

Changes could also include letting banks consider wider forms of proof of affordability such as rental payments, which aren’t always factored in by lenders.

That can mean a tenant is often paying higher rent than what a mortgage would cost but is denied a loan as the payments don’t count.

There does appear to be industry support for change.

“Relaxing mortgage lending rules could help tackle affordability challenges that extend beyond first-time buyers and impact a wide range of potential homeowners,” say Mark Eaton, chief operating officer for April Mortgages.

“The current rules are overly restrictive, and more needs to be done to stimulate the market and create opportunities for those locked out of homeownership.

"We support the spirit of the concept but only if we ensure borrowers are protected from the future risks of increased monthly mortgage payments often posed by short term fixed rate products.”

Ross Lacey, director of Fairview Financial Management, highlights that more activity in buying and selling homes will also create a greater tax take for the government, both in terms of stamp duty but also businesses and individuals involved in the property market such as lenders, brokers, estate agents, solicitors and surveyors paying more in tax.

What are the risks of relaxing mortgage lending rules?

The main fear among many in the mortgage industry is a repeat of the 2008 financial crisis, where buyers ended up with mortgages they couldn’t afford and defaulted due to lax lending rules.

Eaton adds: “Concerns about higher borrowing levels leading to payment shocks could be mitigated by encouraging borrowers to opt for more modern longer-term mortgage products as is the case in Europe and more recently introduced into the UK.

“These options would reduce the risks associated with end-of-term rate adjustments and provide greater financial stability for homeowners.”

There are other risks though.

Rohit Kohli, director at The Mortgage Stop, also warns that boosting lending may push up house prices due to rising demand, while addressing supply may be a better route.

He says: “To truly stimulate the property market and help first-time buyers, the government must tackle the root causes of the supply problem. Too many developers are sitting on land with planning permission, and there’s an unacceptable number of vacant properties that could be put to use.

“While these proposals may give buyers more borrowing power, they echo the principles of schemes like Help to Buy, which improved access but didn’t necessarily lead to long-term affordability. A balanced approach addressing both supply and demand is needed to have a lasting impact.”

TSB did not breach the terms of its home loans by charging ‘mortgage prisoners’ higher rates, a judge has ruled in a High Court preliminary hearing today (25 September).

The high street bank is in the process of being sued in a class action - the first of its kind - which could act as a test case for further claims against other mortgage lenders. The claimants allege they were unfairly locked into paying an excessively expensive standard variable rate (SVR). They fell onto these deals after the collapse of their original lender, Northern Rock, in 2007.

While the ruling does not mean they have lost the case - the court hearing in question was determining legal points ahead of a potential full trial - it could serve to undermine one of the key allegations the claimants are making. Namely, that TSB should have charged them at its SVR rather than at that of its Whistletree brand.

In a statement, Harcus Parker - the legal firm representing the people who describe themselves as mortgage prisoners - pointed out that further key elements of the claim had yet to be ruled on. For example, the court has not yet determined whether the clauses within the claimants’ contracts were fair.

Matthew Patching, a lawyer for the firm, told the Reuters news agency: "Although [the claimants] are disappointed that the result of the preliminary issues trial is not to immediately determine the claims in their favour, they are looking forward to progressing their claims to the next stage and – ultimately – to a full trial." TSB has welcomed the ruling.

What is the TSB ‘mortgage prisoner’ claim about?

The lawsuit centres around TSB’s Whistletree brand. Set up in 2016, the brand was created to look after former Northern Rock mortgage customers whose loans were acquired by TSB in 2015.

These mortgage payers already felt they had become ‘mortgage prisoners’ given they no longer matched the affordability requirements brought in by the government after the 2008 financial crash, and were therefore unable to switch to a better deal. TSB has said it does not accept that the claimants can be classed as mortgage prisoners.

Mortgage prisoners are people who are unable to remortgage, and therefore fall onto an SVR they cannot leave. SVRs tend to offer expensive rates compared to fixed rate deals. As of 25 September, the average SVR is 7.99% while the average two-year fixed-rate mortgage is priced at 5.43%.

Harcus Parker has also claimed that its clients have been stuck on unfair SVR rates. When the preliminary hearing was confirmed, it argued that TSB was contractually “obligated to charge” its clients at the TSB SVR rather than the “separate, higher” Whistletree SVR. This product came in at a rate of 4.79% when Whistletree launched in July 2016 - 4.29 percentage points higher than the Bank of England base rate at the time, and subsequently fluctuated up and down with interest rates. The bank has denied that it had any such obligation.

The law firm is aiming to secure its claimants the difference between the interest they were charged and the TSB rate it has claimed they should have had access to. It has suggested that the compensation may be worth up to £50,000 per claimant, with 27,000 Whistletree customers potentially able to take part in the legal action. Around 2,000 people have signed up to be represented by Harcus Parker if its initial claim succeeds.

This case is expected to be a test case for other mass claims Harcus Parker is planning to bring on behalf of people who have described themselves as mortgage prisoners.

What did the ‘mortgage prisoner’ ruling say?

The preliminary hearing went before the High Court on 23 July, with the case’s judge, Nicholas Thompsell, making his ruling on 25 September. The hearing was intended to determine the legal points for any future trial, rather than rule on the case as a whole.

Harcus Parker, which was representing 392 former Northern Rock mortgage customers who were ultimately transferred to TSB (TSB has claimed it has not verified that all of them are or were its customers), was seeking to get the court to rule that TSB had breached the claimants’ contracts, both in explicit and implied terms.

Judge Thompsell concluded that TSB had not breached the “express terms” of the mortgage contracts held by the claimants. He said the Whistletree SVR should be seen as a “continuation of the original SVR originally operated by Northern Rock” instead of a new rate. In other words, TSB was allowed to put the mortgage payers onto the pricier Whistletree product instead of its own cheaper rate.

On whether TSB had broken the ‘implied’ terms of its mortgage contracts, the ruling said that the bank and Harcus Parker had agreed a proposition that decisions to vary interest rates should not be made in an unreasonable manner.

The judge said another hearing would be needed ahead of any full trial. He gave no date for when this should take place.

Nationwide, the UK's biggest building society, is to allow first-time buyers with a 5% deposit to borrow up to six times their income.

While house prices remain relatively high, the new mortgage deal from Nationwide could mean some first time buyers are now able to step onto the property ladder.

The raised limit, however, is only available for those taking out a five or 10-year fixed-rate mortgage.

The move comes as competition between mortgage providers has intensified in recent months and after a report by the Building Societies Association states first-time buyers are facing the toughest conditions in 70 years to purchase a home.

The new deals are being made available via Nationwide's Helping Hand mortgage range. The building society said that, since 2021, it has lent more than £7.5 billion through the scheme.

Debbie Crosbie, Nationwide's chief executive, said: "Helping Hand has supported around 40,000 people onto the property ladder since we launched it three years ago. We want to do more and are boosting the scheme to six times income and increasing the maximum loan size."

Nick Mendes, a mortgage expert from broker John Charcol, called the increased limit a "game-changer for first-time buyers".

He said: "This increased borrowing power can make all the difference for aspiring homeowners, especially in a challenging market where property prices often feel out of reach."

Is borrowing six times your income too much?

Borrowing limits have typically been set at 4.5 times people’s income and so the new limit being offered by Nationwide is significantly higher. 

The increase means a couple with a joint income of £50,000 would now be able to borrow £300,000 rather than the usual £225,000 at 4.5 times. Over 25 years and at a rate of 4%, borrowing £225,000 would cost £1,188 a month, while borrowing £300,000 would cost a much-higher £1,584.

Nationwide has said applications will continue to be subject to robust underwriting checks, including full assessments of credit scores and additional credit commitments but borrowing six times your income may not be suitable for everyone.

"It is a welcome move for the right borrowers, but it is not going to work for everyone," said David Hollingworth, from broker L&C.

A larger loan obviously means higher payments each month, which can put pressure on budgets, especially if circumstances change or unexpected costs arise. 

And, although the Bank of England reduced the base rate in August, a larger loan means people are more impacted by interest rate changes. Even a small increase could make your mortgage harder to maintain and those already stretched should be mindful about their ability to meet monthly payments.

Who can get the new Nationwide mortgage deal?

Sole applicants for a Helping Hand mortgage need a minimum income of £30,000, while joint applicants need a combined income of at least £50,000.

The increased maximum loan-to-income ratio means a first-time buyer couple with a joint income of £50,000 can now potentially borrow up to £300,000, assuming deposit and that no other costs affect affordability.

The raised limit is also only available for those taking out a five or 10-year fixed-rate mortgage.

Matt Smith, Rightmove’s mortgage expert, said: “This is likely to be particularly beneficial in areas such as London and the South East where house prices are higher, and currently the average asking price of a home is more than five times the average salary of two people."

Hopes of another interest rate cut have been dashed after the Bank of England held them at 5%.

Coming despite a hefty rate cut in the US by the Federal Reserve, the UK central bank’s decision follows the news that the rate of price rises across the economy remained at 2.2% in August. There are still expectations that the base rate will come down later in 2024. The next Bank of England decision will be released in November. 

The news has put a small dent in the optimism we saw back in August. Back then, the Bank of England’s decision to cut interest rates for the first time since 2020 prompted a wave of mortgage rate cuts, whilst also hitting savings rates.

But what exactly was the impact of this previous decision? Analysts at Moneyfacts have crunched the numbers to give us an indication of what to expect if the economists on Threadneedle Street opt to cut rates again later in 2024. 

What was the impact of the August interest rate cut on mortgages?

Up until the summer base rate cut, the mortgage market was offering prospective buyers little respite. Rates had climbed throughout the spring and were plateauing at a high level. But the cut to interest rates changed lender pricing.

Moneyfacts’s data shows average two-year fixed rates were 5.77% by 1 August 2024 - 0.01 percentage points higher than at the beginning of March 2024, but significantly below the 6.7% average recorded at the start of September 2023.

By early September 2024, rates were 5.56%. While this marks a big fall, mortgages are still much more expensive than they were before the crisis began (2.34% in December 2021) and in the pre-Mini Budget period (4.24%).

Although rates have come down, ‘normal’ market conditions have not yet returned. Five-year fixes continue to be cheaper than short-term deals - a reversal of what we saw before interest rates began to climb in the winter of 2021/22.

Back then, five-year rates were 0.3 percentage points above two-year deals at 2.64%. But as of the start of September 2024, medium-term deals were 0.36 percentage points cheaper than two-year fixes at 5.2% (down from 5.38% in August). The gap between two and five-year terms has closed somewhat, given Moneyfacts shows that it stood at more than half a percentage point in September 2023.

The other key difference the analysis shows is that standard variable rate (SVR) mortgages - the sort of deals you fall onto when your fix expires - have reduced. In August, the average rate was 8.16%. But by September it was 7.99%. This stands to benefit those who are taking a wait-and-see approach to remortgaging.

What do the figures mean for your mortgage?

According to Rachel Springall, finance expert at Moneyfacts, interest rate cuts could be on the way in November. This could mean better news for prospective borrowers is on the way - although she cautioned people about the perils of an SVR deal.

She says: “New or existing borrowers will ideally want to see mortgage rates fall further in the months to come, particularly if they are about to come off a cheap fixed deal. Any borrower looking at their options today for peace of mind could lock into a fixed mortgage early, but it would be understandable for some to adopt a wait-and-see approach, hoping rates will come down by bigger margins.

“However, when falling off a cheap rate onto a revert rate, borrowers will typically see their monthly repayments rise. So, seeking advice to weigh up all their options before their deal ends is essential. A typical mortgage being charged the current average SVR of 7.99% would be paying £383 more per month (£1,927), compared to a typical two-year fixed rate (£1,544 per month).”

These calculations are based on a 25-year, £250,000 mortgage. Springall adds that any people coming up to the expiry of a two-year rate “may be pleased” given the market is “much more stable” than it was around the time of Liz Truss’s Mini Budget.

What was the impact of the August interest rate cut on savings?

While prospective and existing homeowners are likely to be feeling happier about the state of the mortgage market, savers are being forced to scramble to take advantage of decent rates before they disappear.

Average savings rates have begun to drop since the August rate cut. Easy access accounts were 0.07 percentage points down in early September (3.08%) compared to the start of August. Easy access ISAs have fallen by the same amount to 3.29%, while notice ISAs have fallen 0.14 percentage points to 4.08%.

However, these rates are still much better than what you could get in December 2021 - and even as recently as September 2023. A typical easy access savings account would have netted you interest at a rate of just 0.2% in late 2021, with rates at an average of 2.96% by the time of the Mini Budget.

Meanwhile, for easy access ISAs, the rates on offer in December 2021 were 0.26%, rising to 3.04% by September last year. Springall says that while providers have tended to cut rates, they have not dropped by the full 0.25 percentage point cut the Bank of England made in August.

What do the figures mean for your savings?

Springall has urged savers to take action to ensure they get a good rate while they last. She says ease of access and loyalty may not be the best policies at the moment: “Savers would be wise to review their pots considering the base rate cut to ensure they’re still paying a competitive return.

“Easy access accounts remain a popular choice among savers for their flexibility, but the convenience of using one of the biggest high street banks can come at a cost. The average easy access rate paid across the biggest high street banks is 1.93%, which is less than the current market average easy access rate across all savings providers. Loyalty does not always pay, so savers would be wise to seek out the top rates from the more unfamiliar brands.”

She adds that with expectations of two more interest rate cuts coming this year, savers must consider locking their cash away to secure the best returns. “There is an expectation that [the] base rate will be cut twice more before the year is over, so savers need to prepare themselves for more interest rate cuts. Those who are happy to lock their cash away for a guaranteed return could look towards a fixed rate bond or fixed Cash ISA, and with rates expected to decrease further, savers may wish to choose a longer-term deal,” she says.

“Challenger banks and building societies continue to offer some of the top returns and have the same deposit protections in place as the more familiar high street banks, so there is little reason to overlook them in favour of a well-known brand. Whichever account savers decide to open, it’s essential they pick one that suits their needs, but if it’s an easy access account, make time to review the rate regularly.”

If you’re a Halifax, Lloyds or Barclays mortgage customer, you’ll need to take note of some new rules around transferring to a new rate with the lenders when your current deal expires.

Mortgage borrowers usually have up to six months to lock in a new mortgage rate when their current deal is coming to an end. Say you have a two-year fixed rate and it expires in March 2025. You could choose a new rate with the same lender now, and if mortgage rates fall between now and March, you can usually transfer to the lower rate with no penalty.

But this six-month time window is shrinking at several major mortgage lenders. 

Halifax and Lloyds are reducing the time period to four months, and Barclays is halving its transfer window from six months to just three months.

Nationwide has already cut its time period to four months, while Santander also lowered its window to four months in June.

These transfer windows refer to “product transfers”, which is when a mortgage customer stays with the same lender, for example by moving onto a new rate when their current deal finishes.

The lenders cite calmer market conditions and changes in consumer behaviour for reducing the time frames. 

Nicholas Mendes, mortgage technical manager at the mortgage broker John Charcol, tells MoneyWeek: “As interest rates begin to settle and reduce, lenders are tightening these windows to avoid multiple re-applications, which can be costly and time-consuming. By shortening the product transfer window, lenders can better manage their service levels and ensure their products remain competitively priced.”

How does a reduced transfer window affect me? 

The transfer window is particularly important when interest rates are rising, to allow borrowers to grab a new deal before their current one expires and insure themselves against rates increasing further.

But when mortgage rates are on a downward trajectory - and they have been steadily falling over the past few months - the time window is less important.

The average two-year fixed mortgage rate is 5.5%, while the average five-year deal is 5.17%, according to Moneyfacts. 

The Bank of England cut the base rate from 5.25% to 5% on 1 August, and markets expect there to be another one or possibly two rate cuts this year.

Mark Harris, chief executive of mortgage broker SPF Private Clients, says reducing the six-month window could be detrimental to borrowers “had we been in a rising rate environment. But as we are in a falling rate environment, the borrower shouldn’t be negatively impacted as it’s less important to ‘lock into’ a rate.”

What length transfer windows do lenders now offer?

Santander and Nationwide have already lowered their mortgage transfer windows to four months.

Lloyds and Halifax say they will reduce theirs to four as well, effective from 1 October. However, if you have a mortgage that will mature up to and including 31 January 2025, you can still secure a new deal up to six months in advance of your current deal ending.

For customers whose product matures on or after 1 February 2025, they will be only able to secure a new deal up to four months before their current deal ends.

Lloyds Banking Group, which owns Lloyds and Halifax, tells MoneyWeek: “Our approach offers homeowners both the certainty of selecting a new mortgage rate up to four months in advance, and the flexibility of switching to a better rate that might become available too. And, where rates are going down – customers in the final three months can choose to switch immediately without penalty.”

Barclays has also announced that it will cut its time period, moving to just 90 days from 25 September.

Other lenders like HSBC, Virgin Money and NatWest appear to still offer six-month time windows.

Lloyds Banking Group previously offered a three-month window, but increased it to six months in November 2022 to help customers as interest rates had increased. 

Other lenders also hiked their transfer windows following the introduction of the government's “mortgage charter” in June 2023. This support was designed to give borrowers more flexibility at a time when mortgage rates were volatile. 

What about remortgaging to another lender?

The time frames above refer to staying with the same lender for the new deal. If you’re looking to remortgage and move to a different lender, you usually still get a six-month transfer window.

Mendes says: “The move by Barclays [to halve the product transfer window to 90 days] could signal an industry-wide shift, leading to tighter timelines for both product transfers and remortgages.”

However, he adds that lenders are naturally keen to win new business, so they may not reduce the remortgage windows.

Indeed, the gap between remortgages and product transfers may actually make borrowers more likely to remortgage to another lender, especially if they want to lock into a new deal earlier.

Tips if your current mortgage deal is coming to an end

If your mortgage deal is ending, check how far in advance you can lock in a new rate beforehand. 

You want to try and avoid rolling on to your lender's standard variable rate (SVR), which will be very expensive. The average SVR is currently 7.99%, according to Moneyfacts.

If you secure a new mortgage rate, and then rates fall, you can often ditch the mortgage you secured early without paying a penalty and get one at a lower rate.

Note that most lenders won't let you ditch a deal 14 days or less before the new rate is about to start. 

Harris adds: "Should a borrower wish to remortgage away to a new lender, they should allow up to eight weeks for all the paperwork to be completed. Speak to a whole-of-market broker who can look at all the options available to find the best product for you, which may not be with your existing lender."

If you have some spare cash, it can be worth overpaying your mortgage before you switch to a new deal because if you can reduce your loan-to-value you may get a better interest rate. 

There has been a surge in big houses appearing on the property market amid speculation about tax rises in the Budget, Rightmove analysis has suggested.

The property listing site - which is currently at the centre of a takeover bid - found that sales listings for top-of-the-rung houses were 15% higher year-on-year last week. It comes amid reports that Chancellor Rachel Reeves could hike Capital Gains Tax (CGT) and change Inheritance Tax (IHT) rules in her fiscal speech in October.

CGT currently applies to second homes, properties that come with large grounds, and sales of inherited properties. Meanwhile, IHT is already likely to apply to estates that include big homes. Changes to either tax could have significant financial implications for their owners. By selling up now, they may be trying to cash out before any increases come in. 

Rightmove suggested that tumbling mortgage rates also could be behind the uptick. Before the influx of top-end homes, it said bottom-rung properties had been driving the market. According to its latest House Price Index, those looking to sell are continuing to face a buyer’s market.

East of England region sees biggest availability spike for big houses

The property listing website’s analysis specifically focused on top-rung activity between 3 and 9 September. This category includes four-bedroom detached houses and properties with five or more bedrooms. 

It found the number of larger homes coming to the market in Great Britain was 15% higher compared to the same period last year. Over the previous week (27 August to 2 September), the top end of the market had been up just 3%.

The early September spike was most pronounced in the East of England, where the number of big properties coming to the market was 21% higher against the year. The South West (+20%), North West and West Midlands (both +19%) all saw similarly large increases.

At the other end of the scale, Scotland only saw a small 3% uptick, with Yorkshire and the Humber seeing a small rise of 4%. Every other region saw a double-digit increase. London, the most expensive place to buy in the UK, was closer to the GB-average at 14%.

While speculation about tax hikes has been rife since Rachel Reeves announced that she was battling a big ‘black hole’ in the public finances, the changes Rightmove has seen coincide with Sir Keir Starmer’s 27 August Downing Street garden speech. In it, the Prime Minister warned that the Budget is “going to be painful”. He added that the wealthiest people "should bear the heavier burden", suggesting tax hikes could be specifically aimed at those with big assets.

The figures also tie in with a drop-off in mortgage rates. The website’s weekly deals tracker showed the average five-year rate for those with a 40% deposit (the sort of amount a high-end buyer could stump up) now sits at 3.97%, having been 5.27% this time last year. Rates for high-deposit mortgages are tracking roughly a percentage point higher.

Rightmove’s property expert Tim Bannister stated that the findings marked a significant shift in market activity. He said: “Throughout this year we have typically been seeing more activity at the top-end compared with last year, as movers in this sector were hit with peak mortgage rates and lower availability of homes to choose from.

“Since the Bank Rate cut, the trend we were seeing is more smaller and mass-market homes coming to market for sale, but in just the last week we’ve seen a flurry of activity at the top-end again. Some of the lowest mortgage rates since before the mini-Budget are now available for those with a large deposit, and a mooted increase in capital gains tax is also likely to be contributing to decision making right now.”

The site suggested the trend could continue, as a greater choice of homes for sale in a particular part of the market tends to encourage other homeowners in that sector to consider selling.

Landlords are being driven out of the buy-to-let (BTL) sector in record numbers as a result of the “mounting financial strain” of the investment, industry figures have warned.

According to Rightmove figures, almost a fifth (18%) of homes that are currently being put up for sale used to be rented out. This is up from 8% in 2010 and well above the five-year average (14%), although Rightmove said the latest figures were a sign of a growing trend rather than a sudden mass exodus.

London is seeing the biggest lettings-to-sales turnover, with 29% of the properties currently on offer having previously been available to rent, the property listing website has found. Scotland (19%), where lettings rules are different to those in the rest of the UK, and the North East (19%) were the regions with the next highest rate of conversions.

It comes amid concerns that the withdrawal of mortgage interest relief and the threat of a capital gains tax (CGT) raid in next month’s Budget could increase the number of landlords quitting the rental market. The National Residential Landlords Association (NRLA) has urged Labour to bring in “pro-growth tax plans” to ensure there is enough stock to house renters.

Although it was once seen as a secure, long-term investment, returns from BTL have been plummeting in recent years. High landlord mortgage rates, the Renters Reform Bill, and the scaling back of tax breaks have served to hit returns, despite a surge in rents. These have all been blamed for a drop in the amount of rented accommodation.

Rightmove: ‘buy-to-let sector needs support’

Despite an increase in the proportion of previously-rented homes being put on the housing market, the number of new homes coming to the market has still not recovered to pre-Covid levels. Rightmove - which is currently at the centre of a takeover attempt - has found the number of homes coming to the market is still 3% lower than it was in 2019.

At the same time, the decline in the availability of rental stock is driving up rents. This, coupled with the inflation crisis and high interest rates, is likely to have had the effect of denting prospective buyers’ ability to raise a deposit.

The property listing site has argued that landlords need to be incentivised to stay in the BTL sector, and invest in more homes to ensure supply meets demand. Tim Bannister, Rightmove’s property expert, said: “A healthy private rented sector needs landlord investment to provide tenants with a good choice of homes. We’ve seen over the last few years how the supply and demand imbalance can contribute to rising rents, so there is a worry that without encouragement for landlords to stay in rather than leave the rental sector, it is tenants who will pay the price.

“However, despite the trend of more landlords choosing to sell up, it doesn’t appear to be a mass exodus, and we will need to monitor the longer-term impacts of what happens to the rental supply that is put up for sale. For example, these homes could provide first-time buyers with more choice.

“They might also be purchased by other landlords and put back into the rental market, which would signal a changing of the guard rather than a complete exit from landlords. In any case, we hope the government is considering ways it can support landlords and the private rented sector ahead of the Autumn Statement.”

Lettings industry urges government not to hike capital gains tax

Bannister was echoed by several key figures in the lettings industry. Major property services firm Leaders Romans Group (LRG) said the government should reverse Section 24. It said the mechanism is one of the “most significant” reasons for why landlords are exiting the BTL sector.

Allison Thompson, its national lettings managing director, said: “This poorly conceived policy, aimed at boosting homeownership by reducing buy-to-let competition, has instead driven up rents and forced many landlords to cut back on costs and investment in their properties. Section 24, alongside rising interest rates, is one of the greatest burdens on landlords today.

“By disallowing the offset of mortgage interest relief, landlords have faced mounting financial strain, which has contributed to the current housing supply challenges. Reforming Section 24 is key to relieving this pressure, encouraging investment in rental properties, and ultimately stabilising the market for both landlords and tenants.”

Thompson added that failure to act would lead to a “ripple effect” of soaring rents and a continuing reduction in the amount of money being invested in housing. Both of these knock-on impacts will “further exacerbate the housing crisis”, she warned.

According to estate agents trade body Propertymark, Section 24 has already seen landlords pass their increased costs on to renters. It said many landlords were now in break-even or loss-making positions as a result.

London-based estate agency Benham & Reeves said any move by Chancellor Rachel Reeves to hike CGT in her Budget could also backfire. Its director, Marc von Grundherr, said: “The potential equalising of CGT is, of course, a concern for many landlords. If the Labour government was to follow through with it, it could make for a significant increase in the tax paid by the average landlord when the time did come for them to exit the sector.

“This would be yet another blow to those who provide vital housing stock that is sorely needed within the rental sector, following a string of legislative changes already introduced in recent years to dent profitability.

“Despite this, we’re simply not seeing the exodus of landlords that is so often reported, as despite such changes, buy-to-let remains a strong investment. It’s certainly one that most take with a very long-term view and they expect ups and downs, but generally speaking, the returns are consistently good.”

The NRLA, the UK trade body representing most landlords, called on the government to develop a “housing strategy that recognises the need for more of every type of property”, such as private rented homes.

MoneyWeek asked the government whether its upcoming Budget would see any tax hikes for landlords, and if it planned to introduce any support measures to keep them in the BTL sector. A Treasury spokesperson told us: “Following the spending audit, the Chancellor has been clear that difficult decisions lie ahead on spending, welfare and tax to fix the foundations of our economy and address the £22 billion hole in the public finances left by the last government. Decisions on how to do that will be taken at the Budget in the round.”

Labour made several key plays to attract the votes of prospective first-time buyers during the 2024 general election.

Sir Keir Starmer’s ‘Change’ manifesto pledged to reform the planning system and said it would resurrect the 300,000 a year housebuilding target. The document also promised to bring in major changes to the letting and leaseholding sectors.

One of its more eye-catching proposals was the Freedom to Buy scheme. It was launched to big fanfare on the campaign trail and promised to get 80,000 young people onto the housing ladder. But the policy has been cast into doubt by the fact that it didn’t get a specific mention in the King’s Speech. MoneyWeek has asked the government to clarify whether it intends to implement the policy, but has received no response.

It comes as Rachel Reeves is preparing to make the first Labour Budget speech since 2010. The Chancellor of the Exchequer has already hinted that tax hikes could be on the way due to what her party claims was an unforeseen black hole in the public finances. She has already scrapped Winter Fuel Payments for most pensioners - although pressure is mounting on Labour to reverse this decision.

So, what is Freedom to Buy, when can we expect it to come into being - and who could benefit from it?

What is the Freedom to Buy scheme?

Freedom to Buy is essentially a version of the Mortgage Guarantee Scheme that was launched by the Conservative government in April 2021. Its aim is to get more young people onto the UK housing ladder - something that has become increasingly challenging in recent decades due to soaring house prices. 

At its heart, the idea is that the government acts as a guarantor for people who can’t afford a large deposit. With the state taking on the bulk of the risk, the hope is that lenders would offer a larger number of high loan-to-value (LTV) mortgages.

In theory, it means that cash-strapped buyers would be able to secure a home with a smaller deposit of around 5% instead of the customary 10%. It could mean these buyers save tens of thousands of pounds on what they have to pay upfront for a property.

How does Freedom to Buy differ from the Mortgage Guarantee Scheme?

The current Mortgage Guarantee Scheme aims to temporarily support the lending market to offer 95% mortgages on properties costing up to £600,000. It gives lenders the option to buy a guarantee from the government that covers these riskier loans for up to seven years. Should the mortgage payer default, this insurance policy would compensate the lender for up to 80% of the purchase value of the property in question.

Labour claims its Freedom to Buy policy will be more comprehensive than the existing scheme. But it has not provided many details for exactly how its version will differ.

What we do know is that it will be a permanent scheme, whereas the one launched by then-Chancellor Rishi Sunak was only ever intended to be temporary. Indeed, the Conservatives repeatedly renewed the scheme as its deadline approached, with the next deadline coming in June 2025.

The current party of government argues that the temporary nature of the existing scheme restricts the number of 95% mortgages on the market. It says constant uncertainty over whether the scheme would be renewed has meant lenders have not fully integrated high-LTV mortgages into their product ranges, while buyers have been left unable to include it in their home-buying plans.

The figures suggest that this analysis could be correct. According to Moneyfacts, while the number of 95% LTV mortgage products has doubled over the past year, these loans only make up around 5% of the overall number of residential mortgage products on the market.

By making the scheme permanent, as well as rebranding and remarketing the scheme under the Freedom to Buy banner, the government hopes to boost the low-deposit mortgage market. It says its plan will incentivise lenders to make these loans a key part of their offerings, and increase awareness among prospective buyers of what support’s open to them. 

The Labour Party has set itself an ambitious target of getting 80,000 young people onto the housing ladder through the scheme over its five-year term in office. It has pointed to the success seen in countries that have adopted similar schemes, such as Australia and Canada, where smaller deposit mortgages have become more readily available, the cost of them has become cheaper, and home ownership has grown as a result.

Who is eligible for Freedom to Buy?

Exactly who will be able to take advantage of Freedom to Buy remains to be seen. When it was announced, Labour suggested it would solely be open to first-time buyers. The current system is open to current homeowners, as well as first-timers.

MoneyWeek will provide updates on exactly how the scheme will work as soon as more information becomes available.

Yearly growth in house prices has continued to gather pace despite a small summer setback in August, the latest Nationwide House Price Index (HPI) has found.

Average property prices rose 2.4% against August 2023 - the fastest rate of growth for 20 months. It meant a typical home came in at £265,375, which is around 3% below the all-time high recorded in the summer of 2022.

But this figure also marked a 0.2% decrease compared to July 2024’s data, once seasonal effects were taken into account. This was the first month-on-month reversal since the spring, and, according to an assessment of economists’ forecasts by Capital Economics, was an unexpected setback.

It comes as the property market continues to battle against a high interest rate environment. While average mortgage rates are coming down in the wake of the Bank of England’s base rate cut - its first since 2020 - wages and savings have been eroded by three years of high inflation. It means affordability is still an issue for many prospective buyers.

Nationwide: economic recovery ‘should’ strengthen house prices

Despite the minor monthly reversal, Nationwide sounded a positive note about the outlook for house prices. The building society’s chief economist Robert Gardner said: “While house price growth and activity remain subdued by historic standards, they nevertheless present a picture of resilience.

“[This is] in the context of the higher interest rate environment and where house prices remain high relative to average earnings, which makes raising a deposit more challenging. Providing the economy continues to recover steadily, as we expect, housing market activity is likely to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth.”

This view was echoed by UK economist at Capital Economics Ashley Webb, who said: “We doubt the small slip in house prices in August is the start of a renewed and sustained fall. Admittedly, we think house prices will rise by just 0.3% over the remaining four months of this year and that house price inflation will ease to around 2.0% in Q4.

“But the improving economic outlook and a further decline in mortgage rates will possibly mean house prices regain momentum next year. Indeed, our view that Bank Rate will be cut from 5.00% now to 3.00% by the end of next year, instead of to 3.75% as investors anticipate, suggests mortgage rates could fall from 4.8% now to a little below 4.0% by the end of 2025. That could result in house prices growing by an above-consensus 5.0% y/y in Q4 2025.”

Despite these encouraging forecasts, estate agents have suggested full confidence in the market is still yet to return. Nicky Stevenson, managing director of national estate agency Fine & Country, said: "The Bank of England's base rate cut in August has encouraged many potential buyers to move forward with their plans, but for some there is a sense of hesitation. Speculation about another rate cut later this year may be causing some buyers to wait a little longer before making a move.

"With inflation hovering around the government's 2% target and interest rates remaining low, there are promising opportunities for those looking to buy a home or move up the property ladder. In response to this, a mortgage price war has erupted in recent weeks as lenders compete to undercut one another to attract buyers.

"This has certainly breathed new life into UK property. However, while some buyers are benefiting, others may still face affordability challenges.”

Nigel Bishop, managing director of Recoco Property Search said he was seeing hesitancy on the part of buyers, who are waiting to see what the new government announces in September and at its first Budget the following month. Measures that are expected to be announced include new housebuilding targets and the Freedom to Buy scheme.

But he added that housing market activity could rise as sellers attempt to beat the tax hikes Rachel Reeves is expected to introduce in October. He said: “More homeowners have been motivated to put their property up for sale amid fears over an increase in Capital Gains Tax and Inheritance Tax in the upcoming Autumn Budget.

“As we are seeing more sellers entering the market, we predict buyer interest and activity to pick up after the summer holidays. Although this will create a more competitive market environment for house hunters, the influx of homeowners wanting to sell quickly will allow more room for price negotiations.”

Energy-efficient properties ‘command price premium’

Alongside its monthly HPI, Nationwide has released the findings of research it has conducted into the effect energy performance certificates (EPCs) can have on house prices. Using a 12-month comparison of average prices in England and Wales up to the month of June 2024, the lender found a high A or B EPC rating adds an average premium of 2.8% to a property.

Meanwhile, a poor energy efficiency rating of F or G can lop 4.2% off the value of a home. In 2019, the same research found the price penalty of a low EPC rating was 3.5%, with the value added by a good rating sitting at 1.7%.

Commenting on the findings, Robert Gardner said: “The value that people attach to energy efficiency is likely to continue to evolve, especially if the government takes measures to incentivise greater energy efficiency to help ensure the UK meets its climate change obligations.

“Decarbonising and adapting the UK’s housing stock remains critical if the UK is to meet its 2050 emissions targets, especially given that emissions from residential buildings account for 15% of the country’s greenhouse gas emissions.”

Nationwide also found that energy efficiency is improving in England, with 48% of housing stock in England rated as C or higher in 2022. This compared with just 18% of homes meeting this standard in 2012. It calculated that making the average home more efficient would cost £7,400 - but this bill could climb as high as £13,500 on a property with a low EPC score.

It comes after research carried out by Morningstar found there was an average difference of £13,000 between the value of a high-to-medium-rated EPC property compared to a medium-to-low-rated one. However, consumer watchdog Which? recently raised concerns that the scores aren’t always a reliable measure of energy efficiency.

Mortgage rates may be falling again but borrowers need to act fast to grab them before the top deals disappear.

Research from comparison website Moneyfacts shows the average shelf-life of a mortgage product dropped to 17 days in August, down from 30 days during July.

That means while mortgage rates are getting cheaper as inflation and the base rate falls, borrowers looking to buy a property now have almost half the time to get started applying for a deal before they come off the market.

“Lenders re-priced their deals with vigour during July due to falling swap rates, and the volatility within the mortgage market was made clear by the notable drop in the average shelf-life of a mortgage to just 17 days, down from 30 in June,” says Rachel Springall, finance expert at Moneyfacts.

“There are expectations for rates to fall further in the weeks to come, particularly as the market reflects on the 0.25% base rate cut, the first cut in over four years.”

What is happening in the UK mortgage market?

Slowing inflation and falling swap rates have prompted lenders to cut mortgage pricing in recent weeks.

That has also been helped by the Bank of England’s interest rate cut earlier this month.

Nationwide had already pushed mortgage rates back below 4% before the interest rate announcement but other lenders have since followed suit.

Major lenders such as Barclays, NatWest, Santander, TSB and Virgin Money have cut rates in recent weeks.

Barclays, Nationwide and NatWest are currently tussling for the top of the best buy table with all three offering rates at 5.83% for a five-year fix at 60% loan-to-value.

There is a difference in fees though, which can add to the total cost.

Barclays has a £699 product fee but you will pay more with NatWest at £1,495 and £1,499 with Nationwide.

Average mortgage rates have also been pushed down overall.

Moneyfacts data shows average mortgage rates on two and five-year fixed rate deals fell month-on-month by 0.18% and 0.15% respectively, halting five consecutive months of rises. These rates are now at their lowest level since March 2024.

The average two-year fixed rate is now 5.77% or 5.38% for five years.

But borrowers need to move fast, with average shelf-life at 17 days, compared with 30 in July and 28 in February. It is at least better than the typical 13 days recorded this time last year.

How to get the best mortgage deal

Preparation is key when it comes to applying for a mortgage, regardless of the rate.

“The good news is that making an application will secure a rate and some lenders will even allow a rate to be reserved through a decision or agreement in principle,” says David Hollingworth, associate director of communications for L&C Mortgages.

“An adviser could be really helpful in grabbing a rate as they will be able to keep abreast of the market changes.  

"Not all lenders give notice but even though there can be little warning an adviser may have a better chance of alerting you that a deal you’d discussed is about to change.  They may also be able to assess how urgent a change that could be depending on whether rates are improving or edging up.”

Brokers advise having documents ready such as bank statements, payslips and proof of income.

Gary Bush, managing director of MortgageShop.com suggests checking your credit report and making use of open banking technology for quicker financial checks.

“Applications, with a full and compliant set of scanned documents being provided and an advice firm using technology to process the details, should allow for a mortgage decision and application to be processed within a day of receipt,” he says.

The lowest rate may not always be the best deal as you also need to include product fees and if you are even eligible.

If you do miss out on a new rate, it may not be too big a deal at the moment though.

“To be fair, a short shelf life at the moment isn’t a huge issue, as rates are trending down,” says Scott Taylor-Barr, principal adviser at Barnsdale Financial Management.

“So, the rate you missed is probably being replaced by a cheaper one.”

House prices jumped 0.8% last month, giving an annual growth figure of 2.3% - the highest since January 2024.

According to the latest Halifax house price index, a typical UK property now costs £291,268. The rise in house prices follows a flat few months. In June, average house prices fell by 0.2% on a monthly basis. However, last week’s interest rate cut – with further cuts to interest rates expected – means the lender is now predicting that house prices will continue to edge up this year.

Amanda Bryden, head of mortgages at Halifax, comments: “Last week’s Bank of England base rate cut, which follows recent reductions in mortgage rates, is encouraging for those looking to remortgage, purchase a first home or move along the housing ladder. 

“Against the backdrop of lower mortgage rates and potential further base rate reductions, we anticipate house prices to continue a modest upward trend throughout the remainder of this year.”

Will house prices rise further this year?

After three months of stagnation, the bigger-than-expected rise in house prices in July shows that house prices are bouncing back. The consensus forecast for the Halifax data had been a more modest monthly increase of 0.3%, according to the consultancy Capital Economics. The Nationwide house price index, released last week, also showed growth in monthly house prices. The lender said prices rose 0.3% in July, and 2.1% annually - the highest since December 2022.

Experts believe the housing market is heating up and we could see more house price growth in the coming months. Much of this is to do with interest rates, while buyers and sellers will also want to keep an eye on any housing-related announcements from the government.

Last week, the base rate dropped from 5.25% to 5%, the first cut by the Bank of England in more than four years. There are three more base rate meetings to come this year, with markets currently pricing in one, or two, more interest rate cuts.

As a result, mortgage rates have been falling over the past month. The average two-year fixed mortgage rate is now 5.74%, down from 5.9% in mid-July, according to the analyst Moneyfacts and the average five-year deal is 5.36%, down from 5.49%.

Some property buyers can now get their hands on a 3.99% mortgage, courtesy of Nationwide which, in July, became the first major lender to offer a sub-4% deal since February.

Holly Tomlinson, a financial planner at the wealth manager Quilter, notes: “The drop in rates does a lot for buyer and seller confidence.

“A feeling that rates are going in the right direction will help many people decide to take the leap back into the market, pushing up demand for homes. Those on the fence about selling their home may also feel the time is now right.

“The autumn may therefore prove to be busier than anticipated.”

Capital Economics is expecting house prices to grow by 1% this year but admits that prices could rise even faster. 

Ashley Webb, UK economist, comments: “The recent fall in the two-year interest swap rate from 4.25% at the end of July to 4.08% now due to investors’ US recession fears poses a further upside risk to our forecast for house prices to grow by just 1.0% in 2024.”

He adds: “If sustained, the sharp fall in the 2-year interest swap rate suggests that those lenders that haven’t yet reduced their mortgage rates will be able to cut them too. And while we think the Bank of England will hold off until November before cutting interest rates again, the risks are now skewed to the next cut happening a bit sooner than we anticipate. That may mean house price growth accelerates quicker than we expect over the rest of this year.”

What should property buyers and sellers watch out for?

The first thing to note is that while house prices are heading north again, experts believe we will see “modest growth”. 

So, we’re unlikely to see runaway house prices and a boom year in 2024.

Second, it's worth keeping an eye on what the government may do, in terms of housebuilding, any sweeteners for first-time buyers, and tax changes that affect buy-to-let investors. We could see announcements in Labour’s first Budget on 30 October.

Sarah Coles, head of personal finance at the investment platform Hargreaves Lansdown, explains: “If Rachel Reeves boosts the capital gains tax rate to match income tax, a higher-rate taxpayer would see their tax bill rise by two thirds when they come to sell. 

“There will be property investors who decide it's not worth this risk and will sell up before any potential change comes in. If there are too many of them, it could create a glut of property for sale and keep prices down.”

Third, affordability is still an issue. Rising house prices, and mortgages that remain fairly expensive, make it difficult for first-time buyers to get on the property ladder.

Bryden at Halifax notes: “Affordability constraints and the lack of available properties continue to pose challenges for prospective homeowners.”

Some first-time buyers will rely on significant help from the Bank of Mum and Dad, while others may take out ultra-long mortgages that run past retirement age. 

Tomlinson at Quilter says the question of affordability “will end up being a difficult area for the government to truly tackle, as while supply and demand play a large part in why house prices are rising, an even bigger piece of the puzzle is slow wage growth when compared to house price inflation”.

Which regions are seeing the strongest house price growth?

According to Halifax, Northern Ireland continues to record the strongest property price growth in the UK, rising by 5.8% (on an annual basis) in July, up from 4.1% the previous month. This is the highest increase since February 2023. The average price of a property in Northern Ireland is now £195,681. 

House prices in the North West also recorded strong growth, up 4.1% compared to the previous year. Properties there now average £232,489. In Wales, annual house prices grew 3.4% to £221,102 – the highest price seen since October 2022. Scotland also saw a rise in house prices; a typical property now costs £205,264, up 2.1% compared to a year ago.

The only region to record a fall across the UK was Eastern England. The average home now costs £330,282, down 0.4%, on an annual basis.

London continues to have the most expensive property prices in the UK. The average home in the capital now costs £536,052, up 1.2% compared to last year.

Source: Halifax, July 2024

Many homeowners are considering using their savings to overpay on their home loan – paying off some of their debt to try and reduce monthly repayments.

However, not everyone wants to part with their savings. That’s where an offset mortgage may offer a lifeline. An offset mortgage gives you the opportunity to use your savings to reduce the amount of interest you pay on your mortgage – without having to part with your money.

“When mortgage rates are higher and as savings rates aren’t always competitive, offset mortgages start to look increasingly attractive,” says Mark Harris, chief executive of mortgage broker SPF Private Clients. “Although offsets are priced at a premium to standard deals, they will come down in line with the general trend for lower rates.

“The added advantage of an offset is that your savings work harder to reduce the interest you pay on your mortgage, so with savings rates also falling, it might make sense to offset any savings against your mortgage rather than put them in a standalone savings account in a falling interest rate environment.”

How does an offset mortgage work?

If you get an offset mortgage, you open a savings account that is linked to your mortgage. Money that you put in the savings account won’t earn interest, but the balance will be deducted from what you owe on your mortgage when the interest for your debt is calculated. 

So your savings reduce the interest owed on your mortgage.

With most offset mortgages you then have a choice on how you use those savings. You could opt to reduce your mortgage payments each month, or you could opt for higher monthly repayments, but use what you are saving in interest payments to shorten the overall term of your mortgage – meaning you clear your debt sooner.

For example, let’s say you have a £250,000 mortgage, and £50,000 in savings on a five-year fixed offset mortgage at a rate of 4.85%. According to calculations by SPF Private Clients, if you put your savings in the linked account over five years you would save £12,052 in interest.

Advantages of an offset mortgage

With an offset mortgage, you have the opportunity to make bigger savings on mortgage interest payments than the interest you would earn with a savings account.

Offset mortgages are flexible which means you still have access to your savings if you need to make a withdrawal at any time. This flexibility means you can access your savings balance without having to remortgage to raise funds.

It is possible to add multiple savings accounts and even ISAs to your offset mortgage to maximise the interest saving you can make, though this option varies between lenders.

There’s also a potential to save on your tax bill when using savings to offset your mortgage. While savings interest is subject to income tax, there’s no tax to pay on the interest saved on using your savings to reduce your mortgage interest.

Offset loans might be attractive if you are self-employed, as keeping money set aside for tax bills in an offset account can help make savings in advance of the self-assessment payment deadline.

Disadvantages of an offset mortgage

An offset mortgage won’t always save you money. In the above example, I’ve assumed that you don’t need to access any of your savings for the full five years. 

You can withdraw your money whenever you like, but when you do, you’ll pay more interest on your mortgage. If you know you won’t need your money for five years, you might be better off going for a standard fixed-rate mortgage and putting your savings into a top-paying five-year bond.

It is also worth running the sums to see if using some of your savings to reduce your mortgage debt would put you into a different loan-to-value (LTV) bracket.

The lowest LTV threshold for the vast majority of lenders is 60% for which the most competitive rates are reserved. So if your LTV was just above that, you might be better off using savings to pay off some of the mortgage to benefit from a reduced rate of interest and could save far more than an offset mortgage.

David Hollingworth of London & Country Mortgages reckons offsets make sense for those with 5%-10% of their mortgage balance in savings or those who receive regular large bonuses but may need access to the money. 

"Because most of us have a much bigger mortgage than savings balance, if you can knock 0.5% or even 1% off the interest rate by choosing a standard loan, you should."

Can you still pay in and withdraw savings with an offset mortgage?

Offset mortgages are usually completely flexible which means that you can withdraw and pay in savings as and when you need to raise funds or have some spare cash to stash.

The more you add to your savings pot, the further you will reduce the mortgage debt that you have to pay interest on.

Withdrawing funds means that your interest charges will be higher.

The way lenders apply interest charges works differently between lenders. Some offset mortgage providers may keep your monthly payments the same even if you have paid in extra cash into your offset account. In this case, more of your monthly payment goes towards paying off the mortgage balance, rather than going to the lender as interest. This can help you to pay your mortgage off quicker.

Other lenders, however, may choose to calculate the interest on your mortgage daily and adjust payments when there’s any change to the savings balance.

Can you overpay an offset mortgage?

Essentially an offset mortgage is similar to overpaying. But unlike overpaying on a standard mortgage, an offset is flexible and grants you access to the money used for overpayments.

Most lenders allow you to offset up to 100% which means you won't have to pay any interest. However, you will still need to pay the monthly repayment under the terms of your loan agreement, but there won’t be any interest charged – the whole amount will go towards paying off the loan.

If your lender is one that insists on borrowers paying the same amount each month, then you will need to continue to do so. And if at any time your savings balance goes over 100%, you won't be paid any interest on the surplus, so you’re better off finding an interest-paying account in this scenario.

How do I know if an offset is right for me?

There’s no one-size-fits all when it comes to mortgages. Whether an offset mortgage is the best option for you depends entirely on your own personal circumstances and the figures you are dealing with. 

If you've got cash in a low interest savings account, you could save more with an offset mortgage. But we’re not talking small sums when it comes to savings – you need to have a reasonable level of savings to make it worthwhile to pay the higher rates charged by an offset deal.

Also, if you expect you might need to dip into your savings in the near future then it’s possibly not worth an offset loan either.

If paying down your mortgage is your goal then an alternative is to look into overpaying your standard mortgage – just make sure you check overpaying is within the rules of your agreement.

The best way to work out if it is the right option for you is to speak to a mortgage broker. They are experts in the market and will be able to find you the most appropriate and best value mortgage deal available to you.

Nationwide has reduced one of its five-year mortgage rates to 3.99%, becoming the first major lender to offer a sub-4% deal since February.

The five-year mortgage deal is available to new customers moving home with a 40% deposit, and comes with a £1,499 fee. The rate was previously 4.18%.

Other lenders have been lowering their rates ahead of a hoped-for interest rate cut by the Bank of England next month.

The base rate of 5.25% has been held at a 16-year high for almost a year. 

Experts say that a mortgage rate starting with a “3” is a major milestone, and that five-year fixed rates could fall as low as 3.5% if a base rate drop of 0.25% happens in the next few months.

The Bank of England will next meet to decide the base rate on Thursday, 1 August. The following meeting is on 19 September.

Ben Thompson, deputy CEO at Mortgage Advice Bureau, said: "Fixed-rate mortgages under 4% are back on the market showing there are deals to be had. The reality is that lenders have already priced in that all-important first rate cut, whether it comes in August or September.”

The cheapest two-year fixed-rate mortgage on the market is also currently offered by Nationwide, at 4.41%.

When did we last see mortgage rates below 4%? 

The cheapest fixed-rate mortgage today is Nationwide’s 3.99% deal. Compare this to the lowest mortgage rate on 1 July (4.45%) and on 1 June (4.31%) and it’s clear that rates have been tumbling in recent weeks.

Other lenders that have made cuts to certain mortgages recently include Barclays, HSBC and Santander.

The last time any lender offered a sub-4% mortgage deal was in April, when AIB NI offered a five-year fix at 3.99%.

However, in terms of a major mortgage lender offering such a cheap deal, you have to go back to February. Back then, Nationwide had a five-year fix of 3.84%. The data analyst Moneyfacts tells MoneyWeek that other big lenders like NatWest, Lloyds Bank, HSBC, Halifax and Santander also had sub-4% deals in February.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, says: “Fixed mortgage rates are on a downward trend, which will be a relief to borrowers.”

What are the best deals for those remortgaging?

Nationwide’s headline 3.99% deal is only available to those moving home. 

In contrast, the same five-year fix from the UK's biggest building society for someone remortgaging (with a 40% deposit and £1,499 fee) is 4.27%. This rate was also cut today; it was previously 4.35%.

The lowest remortgage rate across the whole market is 4.2% from NatWest, according to Moneyfacts.

So, while those looking to move home may be celebrating a return of sub-4% mortgages, homeowners wanting to remortgage may not be feeling quite as happy.

About 1.6 million existing borrowers will be looking to re-mortgage this year as their fixed-rate deals expire, with some moving off a rate of less than 2%, meaning they face much higher repayments on their next home loan.

Why are remortgage rates higher? 

According to Justin Moy, managing director of the broker EHF Mortgages, cheaper rates for those moving, rather than remortgaging, “has been a tactic from lenders throughout 2024, in their quest to kick-start the homebuying market”. 

He adds: “This type of business is pivotal to the lending targets of lenders, as risk profiling and property values are at their most accurate when compared to other types of borrowers. Those remortgaging will tend to feel the full benefit later as rates continue to slide for the better.”

Elliott Culley, director at Switch Mortgage Finance, tells MoneyWeek that while mortgage rates starting with a 3 is a “significant milestone”, most lenders offer better rates on purchases to remortgages. 

He explains: “The purchase market took the biggest hit when rates started to rise, so lenders want to attract potential new customers to homeownership. The sad reality for mortgage holders is they will always pay slightly higher rates as they will need to remortgage regardless.”

However, Springall is confident that it is “only a matter of time before the lowest rates for remortgage customers fall below 4%”.

Will mortgage rates fall further?

All eyes will be on the Bank of England to see if it cuts interest rates this summer or autumn.

Olivia Harland, senior mortgage consultant at Cleerly, a specialist broker, comments: “If there is a base rate drop of 0.25% in the next few months as predicted by many, we could see five-year fixed rates as low as 3.5% very soon.

“Two-year fixed rates are currently priced a bit higher than five-year fixed rates, but we would expect these to drop by a similar amount.”

One potential risk that could upset the trend of falling mortgage rates is the fact that soaring rents could lead to more activity in the property market, with more buyers looking to buy rather than rent. 

“This means more demand and competition, which could mean these rates [like Nationwide’s 3.99% deal] don’t last that long – especially if the base rate doesn’t drop,” says Harland. 

According to Springall, it’s difficult to tell how quickly mortgage rates could fall and by what margin. “Typically, a brand with a large presence in the market that cuts rates can encourage other lenders to review their rates to compete.”

She adds: “Those waiting for the Bank of England to cut base rate may be crossing their fingers for August, but this has split opinions among economists who are now pointing towards September at the earliest due to stubborn service inflation.”

Should I choose a two-year or five-year fixed rate?

Some buyers and homeowners may be inclined to choose a variable mortgage rate, given that rates are predicted to fall.

For those that prefer the certainty of a fixed rate, the main choice is between a two-year and five-year deal.

As it stands, five-year mortgages are cheaper than a two-year equivalent. The average two-year fix is 5.79%, while the average five-year deal is 5.39%.

But if rates do fall, homeowners taking out the cheaper five-year fix won’t be able to switch to a better deal as quickly as they would if they had taken out a two-year mortgage. So, they could end up paying more overall.

Brokers say that many customers are preferring to take out a two-year fix. 

“Nationwide has launched the cheapest two-year fix at 4.41%, undercutting Barclays’ deals. This is a decent rate that many borrowers will find more attractive than the 3.99% fix mainly because we expect rates to come down more over the next year or so,” says Aaron Strutt at the mortgage broker Trinity Financial.

Thousands of homeowners took TSB to court today in the first case of its kind that highlights the plight of mortgage prisoners.

The claimants, who took out mortgages with Northern Rock before the 2008 financial crisis, claim they have become mortgage prisoners after TSB purchased their loans from the government in 2016 and began charging a standard variable rate (SVR) at approximately double what its other customers pay.

Law firm Harcus Parker is representing 27,000 borrowers in this high court case, which is determining legal points ahead of any trial.

The borrowers fall under TSB’s Whistletree brand and Harcus Parker claims they have become mortgage prisoners as they don’t fit modern day lending criteria and are stuck on unfair mortgage rates.

“Under the terms of the mortgage contracts, TSB was obligated to charge these mortgage customers at the TSB SVR”, says Harcus Parker.

“Instead, TSB charged these customers a separate, higher ‘Whistletree SVR’ which was approximately double the TSB SVR.”

Harcus Parker is bringing claims for Whistletree customers for the difference between the interest they were charged on their mortgage and what they should have been charged. 

It suggests that compensation could be worth up to £50,000 or more.

However, TSB disputes the claims and says borrowers have been able to transfer to new products.

A statement from the bank said: “Whistletree customers are not mortgage prisoners. Since we took over the management of these mortgages, over two-thirds of Whistletree customers have either moved to a new mortgage or closed their mortgage with Whistletree.  

"We remind customers they can switch at least annually, and this is displayed prominently on the Whistletree website.”

This is the first of a collection of claims that Harcus Parker is pursuing against current and inactive lenders who it claims have left borrowers unable to remortgage in the aftermath of the credit crunch, making them mortgage prisoners.

What is a mortgage prisoner?

A mortgage prisoner is defined as someone who is stuck on a lender’s pricey standard variable rate and is unable to remortgage to a new deal as they don't fit the lending criteria.

In many cases the borrower will be with a lender that is no longer operating so has a closed book, making it harder to switch or find a product transfer.

It mainly affects people who took out mortgages before the 2008 financial crisis and ahead of the introduction of the mortgage market review in 2014, which introduced tougher affordability requirements.

There are also more restrictions on interest-only mortgages.

This means borrowers who may have been approved for mortgages in the past, are now struggling and are left on more expensive deals.

A homeowner can also be a mortgage prisoner if the value of their home has fallen below the mortgage amount, known as negative equity.

“Mortgage books, both from collapsed lenders and currently trading ones, are bought and sold as investments by businesses that are not themselves lenders, albeit they may ultimately be owned by a lender,” says Scott Taylor-Barr, principal adviser at Barnsdale Financial Management.

“This means they do not hold the required regulatory permissions or have the resources to offer product transfers and additional borrowing. They are investment businesses, not lending businesses, which creates issues if you are a borrower whose mortgage is owned by one of these companies. 

“A proportion of the business that sits within these books will have been lending that is not acceptable to most lenders now, such as self-certification of income or mortgages at over 100% of the property value.”

How to escape if you become a mortgage prisoner?

The Financial Conduct Authority (FCA) estimated in 2021 that there are 195,000 borrowers in closed books but just 47,000 are actual mortgage prisoners who are unable to switch as they are outside a lender’s current appetite.

The regulator has relaxed its lending rules to let lenders bypass affordability tests in these situations so a borrower can switch products.

Of the 195,000 figure, it suggests that 66,000 may be able to switch, while 30,000 can’t but are unlikely to benefit from a move.

There are also 34,000 borrowers who are in payment shortfall and 18,000 who are near term. These borrowers wouldn’t be able to switch to a new deal, even if they were with an active lender, the FCA said.

“People should speak to a mortgage adviser to see what options they have available,” adds Taylor-Barr.

“They may be pleasantly surprised at what could be available to them now.”

The buy-to-let mortgage market has shrunk for the first time ever as soaring borrowing costs and higher taxes force landlords to sell up.

Potential property investors are also being put off from becoming buy-to-let landlords.

The volume of lending for buy-to-let house purchases more than halved over the course of 2023, according to the trade body UK Finance.

The number of new mortgage loans being granted fell from 25,280 in the fourth quarter of 2022 to 12,422 in the first quarter of this year.

Rapidly rising interest rates played a major role in this trend, making it harder for those looking to buy a rental property to pass lenders’ affordability tests.

In terms of outstanding mortgages, the buy-to-let market contracted for the first time, from 2.039 million mortgages in Q1 2023 to 1.98 million in Q1 2024.

Meanwhile, buy-to-let mortgage arrears have rocketed 93% over the past year, with 13,570 home loans in arrears.

The buy-to-let environment is likely to become even more challenging for landlords, with the government confirming in the King’s Speech last week that it would introduce legislation to "give greater rights and protections" to those renting, including "ending no-fault evictions".

Buy-to-let market shows strain 

While talk of squeezed landlords is nothing new, this is the first time UK Finance has recorded an annual decline in the size of the buy-to-let mortgage market. 

Lower mortgage lending indicates landlords exiting the market, and potential investors choosing not to buy rental properties.

A number of factors have been reducing the appeal of being a landlord over the past few years, and denting their profits.

For example, landlords now face extra stamp duty on second and subsequent properties, and you can only get mortgage interest relief at the basic rate of tax. Previously, higher-rate taxpayers received 40% tax relief on mortgage payments.

Higher mortgage rates and reduced capital gains tax are also hitting landlords.

In terms of profitability, despite rents increasing, the rising costs of being a landlord means that it’s not as profitable as it once was. 

In the first three months of 2018, the average interest cover ratio – the amount of a landlord’s mortgage costs covered by their rental income – was 342%. In Q1 2024, it had dropped to 191%.

UK Finance says being a buy-to-let landlord has become “more challenging and less attractive”.

Buy-to-let mortgage choice

The UK Finance report reveals that most buy-to-let borrowers continue to choose fixed-rate mortgages, with 90% of new lending during the past two years being done on a fixed-rate basis. 

However, when compared with the residential sector, a larger proportion of landlord mortgages are on variable rates.

This has contributed to proportionally more buy-to-let mortgage holders falling into arrears.

At the end of 2023, there were 13,570 buy-to-let mortgages in arrears. While this is a 93% increase on the same quarter a year ago, it’s still just 0.68% per cent of all buy-to-let mortgages.

The number also remained flat in Q1 2024.

Most buy-to-let mortgages are interest-only. As such, they’re more affected by higher interest rates.

There were 600 buy-to-let possessions during the first quarter of this year, compared with 430 in the same quarter a year ago. According to UK Finance, this is still below the number before the pandemic.

Landlords are facing much higher mortgage costs compared to a few years ago. The average two-year buy-to-let mortgage rate today is 5.43%, according to the data analyst Moneyfacts, while the average five-year fix is 5.5%. 

If you’re a landlord struggling to meet your mortgage payments, speak to your lender. They have a range of options available to support customers - and contacting them will not impact your credit score.

What next for buy-to-let? 

Landlords may see a seasonal bounce this summer with rents set to rise as the “peak lettings season” begins.

Looking more long term, all eyes will be on the next set of regulations to impact property investors.

James Tatch, head of analytics at UK Finance, comments: “A flexible and well-run private rental sector is an essential part of the housing market. Landlords face a number of challenges, from changing regulations to rising interest rates, but have shown resilience.

“However, given the new government is committed to abolishing Section 21 'no fault' eviction notices, it must make sure that responsible landlords have other options for when they have legitimate reasons to take their property back.”

He believes that with strong rental demand and strong lending standards, the buy-to-let sector could emerge from last year’s downturn sooner than previously expected, and that further rises in arrears are limited.

Having said that, UK Finance is forecasting a further drop in buy-to-let mortgage lending this year. It thinks lending will fall by a further 13%, to £7 billion.

Pensioners have already seen their retirement income squeezed thanks to inflation – and recent research suggests mortgage costs could be adding a significant burden for around half a million pensioners.

The cost of a comfortable retirement has skyrocketed in recent years. Figures from the Pension and Lifetime Savings Association (PLSA) suggest the average two-person household now needs an annual income of £59,000 to enjoy the finer things in their golden years.  

Even the cost of a basic retirement has soared to £22,400 for the average couple, up from £19,900 in 2022/2023. This doesn’t include the costs associated with running a car. Likewise, none of the figures include housing costs, such as mortgage repayments or rent. 

This paints a worrying picture, particularly when coupled with recent research from financial services company SunLife. 

The provider's survey of 2,000 over-50s revealed that one in five were still paying off their mortgage – despite the fact that a further 13% of this group were no longer working. This suggests that one in 14 retirees, the equivalent of half a million people in the UK, may still be paying off their mortgage. 

It comes as data from UK banking trade body UK Finance shows there were 32,990 new home loans advanced to older borrowers above age 55 in the second quarter of 2024, up 8.34% annually.

The value of this lending was £5bn, which was up 17.5% compared with last year.

Today’s high interest rate environment will only make the burden of mortgage repayments more challenging for retirees. The average two-year fixed-rate mortgage now costs 5.58%, according to Moneyfacts, while the average five-year mortgage costs 5.22%. 

How much will paying a mortgage in retirement cost you?

SunLife’s research suggests that the average retired mortgage holder still owes £33,627. Over a remaining five-year term at a rate of 5.25% (the base rate at the time SunLife's research was conducted, which has since fallen to 5%), this would result in monthly repayments of £638, the company reveals. This sums to £7,656 per year. 

With a basic retirement now costing the average couple £22,400 per year, that means you would be spending just over a third of your annual income on mortgage repayments.

As we have established, this figure from the PLSA does not account for housing costs. So, the reality is that the remaining £14,744 would probably not be enough to cover your other expenses.

“For many years, borrowers of all ages have been taking extended mortgage terms up to age 70 or 75 on the basis of getting the borrowing needed and keeping the repayments affordable,” says Stephen Perkins, managing director at Yellow Brick Mortgages. 

He adds: “When discussing, they often talk about plans to overpay, continue working to that age or reducing the term on future remortgages when their incomes have increased.

“What we are starting to see is [that] those well-intentioned plans rarely come to fruition, and this means more and more borrowers [are] still struggling to cover a mortgage payment on a reduced retirement income, forcing many to end up selling their home or downsizing.” 

How big a pension pot do I need if my mortgage won’t be paid off by the time I retire?

If you are a two-person household looking to enjoy a moderate retirement, this will cost you £43,100 a year, according to the latest PLSA figures. 

Let’s imagine you also have annual mortgage costs of £7,656 per year, the average figure identified by SunLife. This would take your total annual costs to almost £51,000. 

If both people in the household qualify for the full new state pension, they will receive around £11,500 each per year (£23,000 jointly). But they will still need to find an additional £28,000 from somewhere. 

To buy an annuity which pays out £28,000 per year, an individual person would need a pension pot worth roughly £380,000, according to the experts at Hargreaves Lansdown. 

That would buy a single life annuity, so it wouldn’t continue to pay an income to your partner after death. Furthermore, the figures are for a level annuity rather than one that’s linked to inflation. Inflation-linked annuities typically offer a lower starting income. 

How to pay your mortgage off sooner

Recent data from the Bank of England revealed a surge in ultra-long mortgages. More than one million homeowners have taken these out over the past three years, and will still be paying them off in retirement. 

Mortgages with 30 or 40-year terms are more affordable on a monthly basis, but the reality is that you will end up paying far more over the full life of the loan. 

Overpaying your mortgage when you can, or remortgaging with a shorter term once your fixed period expires, could boost your chances of being mortgage-free by the time you retire. 

If you are approaching retirement age and don’t want to delay your golden years, you could consider downsizing and using the equity this generates to pay off the remainder of your mortgage. 

SunLife also points to equity release as a potential solution – but it’s worth remembering that this is still a loan that accrues interest. 

The main difference between this and a mortgage is that “it doesn’t need to be repaid until you pass away or move into care permanently,” explains SunLife chief executive Mark Screeton. 

This means it can “free up retirement funds for those living on a pension income that’s being eaten into by mortgage payments”. 

Mortgage borrowers are being offered up to £15,000 cashback to go green.

Virgin Money has launched a new product called The Retrofit Boost, which is designed to help homeowners improve their property’s energy efficiency by giving borrowers cashback to spend on improvements.

Energy efficiency has become a key marketing tool when trying to sell a property, especially with high gas and electricity bills.

As well as lowering bills, a more energy efficient home can also boost house prices.

But with Office for National Statistics (ONS) data showing the average home’s energy performance certificate (EPC) rating is D, there is plenty of improvement to get towards the gold standard of A.

The cost of improvements is one of the main barriers, with recent analysis by the Mortgage Advice Bureau showing a fifth of homeowners want to make improvements but half are worried about the expense.

Virgin Money is aiming to address this with a new product range in partnership with Hive that will help fund changes when taking out a home loan for a purchase or remortgage.

“At Virgin Money, we recognise the increasing desire among customers to create more efficient living spaces,” says Craig Calder, head of secured lending for Virgin Money.

“However, traditional financing options for home efficiency upgrades can be restrictive. The Retrofit Boost Mortgage is designed to dismantle these barriers.

“By providing cashback specifically for efficiency improvements, this mortgage product removes a significant financial obstacle.

However, you have to take out a 10-year fix to get the maximum cashback.

We explain how the Virgin Money Retrofit Boost Mortgage works and if it is worth it.

How Virgin Money's Retrofit Boost mortgage works

The Retrofit Boost Mortgage aims to fill the funding gap when it comes to energy improvements.

Virgin Money has partnered with smart home company Hive to design this product.

The idea is that borrowers on these mortgages can access energy saving tips and guidance on available grants from Hive as well as using the cashback to purchase its energy efficiency and smart home packages.

Customers are also free to spend the money with other suppliers to make the eligible improvements, which can include changes such as loft insulation or installing a heat pump.

Borrowers can only access this product through intermediaries, so you first need to check if your mortgage adviser works with Virgin Money.

It can be used for both residential and buy-to-let purchase and remortgages.

That may be of particular interest to landlords as rental homes must have a minimum EPC rating of E.

There are four fixed rate product options and the longer you borrow for, the more cashback you will earn.

This includes a five year fixed rate at 4.99% for 75% loan-to-value (LTV) with £3,000 cashback. There is also an 85% LTV option for five years at 5.04% that also pays £3,000.

The cashback rises if you borrow for longer.

Borrowers can get £10,000 cashback on a seven-year fix at 5.74% for 85% LTV but you will need to borrow for 10 years to get the maximum £15,000. The 10-year fix is available at 85% LTV and has a rate of 5.84%.

The minimum loan size is £150,000 and the product will be available for loans up to £500,000.

All the products have a £995 fee, plus there may be broker fees to pay.

How Virgin Money's Retrofit Boost mortgage compares

There are other green mortgages on the market, but many focus on a home that has already been made energy efficient.

This product could be of benefit if you need help funding the changes, but you first need to check if the improvements are possible.

Mortgage brokers have welcomed innovation to get homeowners to go green.

Justin Moy, managing director at EHF Mortgages, says: “For those who may have considered borrowing extra on their mortgage to pay for upgrades to their property, this is an indirect way of achieving that same outcome. 

“Green mortgage product innovation is definitely needed within the industry and Virgin should be applauded for this move.”

But Moy and other brokers have warned borrowers to be wary of the rates and loan terms.

Moneyfacts data shows the average five-year fixed rate mortgage is currently at 5.5%.

That makes Virgin Money’s five-year deals competitive, however, Simon Bridgland, director at Release Freedom, warns the rates are “eye-watering” if you want to get the maximum £15,000 cashback on a 10-year fix.

“Achieving the top rate of green label cashback means tying in for a whopping 10 years at some eye-watering rates,” says Simon Bridgland, director at Release Freedom.

“Given that leading rates currently available for both borrower types are much lower, why would you choose to shoot yourself in the foot like this?”

In comparison, borrowing £15,000 through an unsecured loan for five years would cost a little over £18,600 at 9%. 

“The increased rate with Virgin when compared with a market leading rate would be roughly £80 per month more if you were to borrow say £120,000 over 20 years,” adds Bridgland.

“Tied in for 10 years this is roughly £9,600 more just over the 10 years, so not as good a cashback as it first seems.”

First-time buyers with small deposits will be pleased to learn that the choice of low-deposit mortgages has hit a two-year high.

There are now 361 mortgage deals on the market that have a 95% loan-to-value, up from 270 at the start of this year, according to the data analyst Moneyfacts.

The number has almost doubled since July 2023, when there were just 188 low-deposit mortgages on sale.

Rachel Springall, finance expert at Moneyfacts, says the figure could rise further, spelling more good news for those with limited budgets and facing high house prices.

“The 361 options available is the highest count since May 2022, when there were 369 deals,” comments Springall.

“There is lots of room for growth in this area of the market, as it currently represents just 5% of all deals available to borrowers across fixed and variable mortgages.”

David Hollingworth at the broker London & Country Mortgages says that having a good supply of mortgage options for buyers with a small deposit “could be invaluable in accelerating their ability to get on the housing ladder”. 

He adds: “Mortgage rates will be higher than for those with a bigger deposit but that has to be balanced against the chance to buy sooner or even at all.”

First-time buyers will also be eagerly waiting to hear more about Labour’s Freedom to Buy initiative, which is designed to help get 80,000 young people onto the property ladder over the next five years.

Mortgage choice is increasing

It’s not just low-deposit mortgages increasing in number - overall product availability has also continued to rise, hitting a 16-year high.

Property buyers and homeowners remortgaging now have 6,658 mortgages to choose from. A year ago, there were only 4,396 deals available.

Mortgage product availability dipped in the wake of Liz Truss's disastrous mini-Budget in 2022. A staggering 1,700 mortgages - 40% of the market at the time - disappeared from sale in the space of a week.

Last summer, almost 800 deals - 10% of the market - were withdrawn by mortgage lenders who were spooked about how high interest rates could go. 

This was at a time of higher-than-expected inflation figures, with the rate for April 2023 coming in at 8.7%.

Springall notes that the increased availability of mortgages is “spreading a positive sentiment” in the market. 

Average mortgage shelf-life is also improving

There’s more good news for those mulling over mortgage deals - you now have longer to choose the right product for you.

The average shelf-life of a mortgage product had dropped to just a couple of weeks, forcing buyers and homeowners to move quickly if they wanted to secure a deal.

However, the average shelf-life of a mortgage is now 30 days, up from 15 days last month, according to Moneyfacts. 

The lowest shelf-life average was 13 days in July 2023.

Springall says the increase in shelf-life is due to “volatile swap rates” becoming calmer last month. 

Mortgage rates continue to climb

The bad news is that mortgage rates are still rising. This is despite Bank of England base rate being stuck at 5.25% since August 2023.

Average mortgage rates have gone up for five months in a row.

The overall average two- and five-year fixed rates rose between the start of June and the start of July, to 5.95% and 5.53% respectively, according to Moneyfacts.

However, a handful of mortgage lenders are making ad-hoc cuts to their rates. 

For example, Barclays and The Mortgage Works (the buy-to-let arm of Nationwide) reduced some of their rates last week. Nationwide is trimming rates on some of its fixed mortgage rates by up to 0.3 percentage points from tomorrow (9 July).

The average two-year tracker variable mortgage rate is 5.94%, says Moneyfacts, while the average standard variable rate (SVR) is 8.17%.

First-time buyer options

As well as increased choice of low-deposit mortgages, lenders are offering more innovative products.

For example, Yorkshire Building Society unveiled a 99% loan-to-value mortgage in March. Buyers need a £5,000 deposit and can use the mortgage product on homes worth up to £500,000, effectively providing a 99% loan-to-value loan.

Meanwhile, Skipton Building Society launched its Track Record mortgage last year, which requires no deposit and uses rent payments to work out what you may be able to borrow. 

Hollingworth says it’s important borrowers look at the mortgage fees as well as the rate. 

He tells MoneyWeek: “First-time buyers should keep a close eye on any associated fees rather than be overly focused on the lowest rate. Looking at the total cost of a deal over the mortgage period will help deliver better value.  

“Lenders understand that first-time buyers won’t want to cover lots of other costs at an expensive time and so will often have options with no fee but also may add other incentives such as cashback.”

Labour’s victory in last week’s general election should also usher in a new housing policy, the Freedom to Buy scheme.

The party has pledged to help get 80,000 people onto the housing ladder over the next five years. It will do this by making the current mortgage guarantee scheme – due to expire in June next year - permanent.

Labour says it will incentivise lenders to offer high loan-to-value mortgages by acting as a guarantor for first-time buyers who cannot afford a big deposit.

We may see more detail about this in Labour’s first Budget, which is set to take place in the autumn.

Hundreds of thousands of mortgage borrowers will have seen their monthly repayments rise by the general election, making housing a key political issue, research suggests.

Yet there is very little promised in the general election manifestos on mortgage support.

Borrowers on fixed-rate mortgages over the past few years have been sheltered from interest rate rises.

But data from UK Finance suggests around 700,000 fixed-rate mortgages have already expired this year and a total of 1.4 million borrowers will have needed to remortgage by the end of this year.

Meanwhile, technology firm Eligible, which uses artificial intelligence to analyse bank customers’ financial and behavioural data, estimates that 100,000 fixed-rate mortgages will end before the general election of 4 July.

That means that as the nation heads to the polls for the general election, many borrowers will be moving from historically low fixed rates of between 1% to 2% to an average of 5.97% for a two-year fix and 5.53% for five years.

A homeowner used to a 2% fixed rate for a £200,000 mortgage over 25 years would see their repayments rise from £848 per month to £1,285 if remortgaging to a two-year fix at 5.97%.

The figure could be higher for others and the Treasury launched a mortgage charter in June 2023 to help borrowers struggling with rising mortgage repayments.

Financial Conduct Authority (FCA) figures show around 1.1 million borrowers have benefited so far from the charter.

It comes amid hopes of an interest rate cut in the coming months that could bring mortgage pricing down, although analysts don’t expect this to happen until at least August.

Will the next government help with mortgage costs?

Despite the millions of homeowners set for increased monthly repayments and the hundreds of thousands already seeking support, the general election manifestos are relatively quiet on mortgage support.

Much of the general election housing policy focus is on first-time buyers, with the Conservatives pledging to maintain stamp duty thresholds for first-time buyers and Labour promising a permanent version of the Mortgage Guarantee Scheme known as Freedom to Buy.

“Public sentiment with this election with the people that I am speaking to is lack of trust on both parties,” says Michelle Lawson, director at Lawson Financial.

“This result of the election is going to be the least worst not the best person for the job in my opinion. Most borrowers whose product ends on or before 4 July should have done something by now - if not they are cutting it fine.

“The majority now have accepted their payments will increase and can absorb the rise however there will be some that will struggle.”

Scott Taylor-Barr, principle adviser at Barnsdale Financial Management, says most people are apathetic about the impact the election will have on their mortgage and general finances.

“Most borrowers I am speaking to are not struggling to meet their mortgage commitments,” he says.

“Many are tightening up on things, but that is more discretionary type spending, taking less holidays, keeping the car longer, or cancelling TV and music subscription services. Meeting their mortgage payment is an extremely high priority to them and so there are lots of other things that will be stopped first.”

How to cope with rising mortgage costs

Banks are still committed to the Treasury-backed mortgage charter, set up last year to help struggling borrowers remortgage to a new deal six months before their current one ends, switch to interest-only or extend their term to reduce repayments

FCA data between July 2023 and April 2024 shows 159,000 mortgages have either been switched to interest-only or had their terms extended so far.

Another 1.1 million have locked in another fixed rate before their current deal ends.

That is one method recommended by mortgage brokers to ensure you can secure a rate you are comfortable with.

It means you can apply for a deal early if you think pricing will increase, while having the freedom to change to a different product if rates drop.

Other options include overpaying your mortgage to reduce the term and overall debt.

Beyond any further mortgage support from the next government, many borrowers are waiting on the timing of the next interest rate cut as there is a risk of fixing now and paying over the odds or missing out on the best mortgage rates if a cut is delayed.

“Many advisers would say it’s a coin toss as to what will happen next with rates,” says Simon Bridgland, broker at Release Freedom.

“Simply get the best product available and hunker down, as turmoil ends as sure as it starts. Those struggling to meet payments and lucky enough to be with a lender who subscribes to the mortgage charter are taking advantage of its benefits.”

Labour has pledged to get 80,000 young people onto the housing ladder over the next five years through a ‘Freedom to Buy’ scheme, if it wins the general election.

The policy would be an extended, permanent version of the Conservatives’ mortgage guarantee scheme, which is currently due to expire in June 2025. Keir Starmer said his plan would “clear the way for the opportunity to own a home”.

Alongside the first-time buyer scheme, Labour said it would reintroduce housing targets and reform the planning system to increase the availability of homes. Other policies it has announced so far on the election campaign trail include plans to create a state-owned clean energy company, maintain the triple lock, and add VAT to private school fees.

This week, the party has become embroiled in a bitter tax row with the Conservative Party. Both parties have committed to not increase income tax, National Insurance and VAT in the next Parliament.

Starmer: Freedom to Buy will ‘turn home ownership dreams into reality’

Labour claimed Freedom to Buy will be a more comprehensive version of the mortgage guarantee scheme. It would incentivise lenders to offer high loan-to-value (LTV) mortgages by acting as a guarantor for prospective first-time buyers who cannot afford a big deposit.

The current iteration of the scheme, which applies to homes worth up to a value of £600,000, was initially announced by Rishi Sunak in the 2021 Spring Budget. The then-Chancellor used it as part of a bid to resurrect the housing market after the Covid-19 pandemic.

Starmer’s party claimed that because it was labelled as a temporary measure from the outset, high LTV mortgages have only been a peripheral part of the market. Figures from Zoopla showed that less than 1% of mortgage lending to first-time buyers has been over 95% LTV over the past five years. LTVs of 90% to 95% account for 20% of the new loans issued over this period.

By making the scheme permanent and giving lenders certainty, Labour said it would increase the availability and lower the cost of mortgages for low-deposit buyers - something similar schemes in Australia and Canada had achieved.

Starmer said: “After 14 years of Conservative government, the dream of home ownership is out of reach for too many hard working people. Despite doing everything right, they can’t move on and up. A generation face [sic] becoming renters for life.

“My parents’ home gave them security and was a foundation for our family. As prime minister, I will turn the dream of owning a home into a reality.”

Non-partisan think tank the Institute for Fiscal Studies (IFS) said the scheme had the "potential" to help first-time buyers. But it suggested it would not go far enough to solve the lack of home ownership among younger people.

Its senior research economist, David Sturrock, said: "The need to save up for a deposit is only one hurdle: prospective buyers also need to have a sufficiently high income to take out a (bigger) mortgage and afford the repayments.

"As a result, potential buyers who are in their 30s and from better-off backgrounds, and who are looking to buy outside of London and the south east, are more likely to be able to take advantage of this scheme.”

Labour to bring back new home targets

Starmer also said a Labour government would “get Britain building again” by bringing back house building targets. His party has pledged to build 1.5 million homes over the next Parliament, marking the return of the 300,000 new homes a year target successive Conservative governments have promised but failed to meet.

The Conservative 2019 general election manifesto pledged to build a million homes by the next general election - i.e. now. While the Conservatives have claimed they have met the overall target, we will not get official figures until later this year. What we do know is that the party is unlikely to achieve the 300,000 target as the construction of new homes ground to a halt in the second-half of 2023.

To hit the 1.5 million target, Labour said it would build on disused ‘grey belt’ land, fast track brownfield planning applications and unveil more new towns. The party added that it would reform compulsory purchase laws in a bid to "stop speculators frustrating housebuilding and squeezing value from infrastructure and affordable housing”.

Starmer also revealed that Labour would give “first dibs” on new developments to local people in a bid to stop international investors from snapping up new housing estates. He added that his party would "tax foreign buyers" who price young people out of the housing market, using the proceeds to "fund new planning officers" to approve homes next generation needs.

How has the property industry reacted to Freedom to Buy?

Labour’s plans have been met positively by several key players in the property market, including builders.

Richard Donnell, executive director at Zoopla, said: "Policies to support people to buy their first home are always welcome. One of the greatest challenges facing first-time buyers is the deposit needed to fund a purchase.”

However, Donnell echoed the IFS by warning that borrowers benefitting from the scheme “will still need to prove they can pay a stressed mortgage rate at a higher level than the actual rate they will pay”, meaning they may need to have high income. He added that the plans may only work in “lower-value housing markets” and could be “much harder to make work in southern England” where repayments could still be unaffordable for less-well-off buyers.

Barratt Developments, one of the biggest house builders in the UK, greeted the announcement positively. Its chief executive, David Thomas, said: “We welcome proposals that could help more people buy their first home in a challenging market.

“In order to support more people to buy their first home, it is also important that we improve the current planning system, which includes setting housing targets in local plans and recruiting more skilled planners, so local authorities and housebuilders can build the much-needed, high-quality and energy-efficient homes the country needs.”

Meanwhile, fellow house builder Vistry Group also backed the plans. Stephen Teagle, its CEO of partnerships and regeneration, said: “Vistry supports Labour's plans to increase the supply of much needed homes, including affordable housing and homes to buy, alongside their proposed Freedom to Buy offer.

“Access to affordable housing within thriving communities is essential for so many families currently denied choice. We are confident that the planning reforms set out by Labour will dismantle some of the current barriers to building more homes, enabling Vistry as one of the country's largest house builders to build more homes of all tenures over the coming years.”

Conservatives pledge to not increase stamp duty

On Thursday, the Conservative Party also made its first housing pledge of the general election campaign. In an article for the Daily Telegraph, which doubled down on Rishi Sunak’s £2,000 Labour tax attack, Chancellor Jeremy Hunt promised that a Tory government would not hike stamp duty.

Announcing a ‘Family Home Tax Guarantee’, Hunt committed “not to increase the rate or level of stamp duty”. He said he was “throwing down the gauntlet” to Labour to match the new pledge. Sir Keir Starmer’s party has said it wants to “reduce taxes on working people”.

His predecessor as Chancellor, Kwasi Kwarteng, introduced a permanent cut to stamp duty in the 2022 mini-Budget. Hunt made this policy temporary when he gave his follow-up Autumn Statement, with the current thresholds set to expire in spring 2025. He suggested at the time that he would create a different property tax system, although it seems this aspiration will not be a priority for a potential future Conservative government.

The housing market can’t seem to catch a break in 2026 as hopes for high house price growth have been tempered by ongoing tensions in the Middle East.

Lenders and experts were optimistic about property prices at the start of the year with mortgage rates falling, but this positivity has diminished as the conflict in the Middle East persists.

The Bank of England has held interest rates at 3.75% all year so far, mindful of the war’s impact on inflation.

Against that backdrop, borrowing money for a house is unlikely to get cheaper any time soon with mortgage rates from most major banks now far higher than in January 2026, before the war in Iran began.

Additionally, homes are taking longer to sell, which is in part blamed on low demand but also overvalued asking prices.

So, how much can you now expect to pay for a house? We look at the latest data from the major house price indices, including Halifax, Nationwide and the Office for National Statistics (ONS) and Zoopla, as well as Rightmove for asking prices.

What is the current average house price in the UK?

While each house price index (HPI) report varies, currently the average house price sits roughly between £268,000 and £300,000.

That said, these are UK average prices, and prices can vary dramatically depending on the region and methodology of each HPI.

HM Land Registry UK House Price Index

The most authoritative house price index is HM Land Registry, as its data includes cash purchases as well as homes financed through a mortgage. Its data is published on a six-week time lag, making it more retrospective than other house price indices.

The latest Land Registry data, for April 2026, shows the average UK house price is £270,000.

According to the data, house prices rose by 0.7% month-on-month and by 3.8% on an annual basis – a notable increase on the flat prices over the 12 months to March.

But the ONS pointed out the higher increase might be down to a base effect; while house prices rose moderately between March and April 2026, during the same period a year ago, they showed a sharp decrease due to stamp duty changes that took effect in April 2025.

The average house price in England increased by 3.9% to £291,000 in the 12 months to April 2026. In Wales and Scotland the comparable figures were a 3.5% increase to £212,000 and 2.8% increase to £192,000 respectively.

House prices in London continue to slide, falling by 2.1% between April 2025 and April 2026, from £565,000 to £553,000.

Nationwide House Price Index

The most recent Nationwide data shows house price growth has slowed annually for the second month in a row.

House prices rose by 1.7% annually in May, down from 3% in April. After taking account of seasonal effects, Nationwide said prices dropped by 0.6% month-on-month.

Nationwide puts the average UK house price at £278,024 as of the end of May.

Robert Gardner, chief economist at Nationwide, said some momentum has been lost in the market due to the Iran conflict but he insisted it was proving resilient due to strong household finances and low debt relative to income.

He added: “While market interest rates have risen in recent months, the impact on affordability has so far been modest. Indeed, swap rates, which underpin fixed‑rate mortgage pricing, remain well below the highs reached in 2023 and are broadly in line with levels prevailing in 2024, implying only a partial reversal of earlier gains.

“This provides some confidence that, if the latest shock passes relatively quickly, and energy prices normalise in the quarters ahead, any near-term softening in the housing market will also prove short-lived.”

Halifax House Price Index

The latest Halifax HPI shows the average UK house price maintained its monthly 0.1% decline between April and May to £298,806. The annual growth rate edged up slightly, from 0.4% in April to 0.5% in May.

Analysis by Halifax suggests the drop in house prices was a result of the higher borrowing costs and lower consumer confidence caused by the Iran war.

Amanda Bryden, head of mortgages at the lender, said: “Property price trends continue to reflect the uncertainty linked to developments in the Middle East. Despite recent cuts to mortgage rates, higher inflation expectations have kept borrowing costs above the level seen at the start of the year, continuing to stretch affordability for many buyers and temper demand.”

It is the second consecutive monthly drop in house prices reported by the lender, coming after a 0.5% fall between February and March.

Rightmove House Price Index

Unlike Nationwide and Halifax’s HPIs, which are based on the building society and bank’s valuations at the mortgage-approval stage, Rightmove’s HPI is based on asking prices.

Rightmove found asking prices fell by 0.6% in the month to June, taking the average asking price to £376,191 – the biggest June price drop in 14 years.

Rightmove said despite cost pressures, the market was holding up relatively well, with sales agreed down 4% compared with May 2025, but up 2% compared to the same month in 2024.

Zoopla House Price Index

The Zoopla house price index uses sold prices, mortgage valuations and data for agreed sales to calculate house prices for any given month.

According to Zoopla’s latest data, the average house price in the UK is £271,900 (as of April 2026), up fractionally from £271,700 in March.

How is the Iran conflict affecting confidence in the market?

As well as the five main HPIs released on a regular basis, the Royal Institution of Chartered Surveyors (RICS) also publishes a monthly Residential Market Survey.

The report generates net balance scores between -100 and +100 in response to a series of questions put to its members (estate agents and surveyors) about how the housing market has changed.

RICS reports at the start of 2026 had suggested the housing market was showing positive signs, but now members are warning tensions in the Gulf are weighing down on the near-term outlook.

New buyer enquiries continue their negative trend, with the May net balance remaining at -34%. RICS said although a weak figure, it was the first reading since January that had not fallen into further negative territory, potentially indicating a more stable picture emerging.

On agreed sales, RICS members reported a net balance score of -37%, down from -36% in March. While showing further declining sales, the pace at which these numbers are falling appears to be slowing, again suggesting a period of better stability.

Will house prices rise in 2026 and beyond?

At the start of the year, major lenders and estate agents were forecasting house prices to rise by up to 3% in 2026.

Estate agency Hamptons expected property values to grow by 2.5% by Q4, while Halifax forecasted they would edge up by between 1% and 3%.

However, the ripple effects of tensions in the Middle East have prompted some economists and analysts to review their forecasts for the year.

Economists at Pantheon Macroeconomics have adjusted their predictions for house price growth for 2026 from 3% to 1%.

Meanwhile, housing analysts polled by Reuters news agency in May and June forecasted property price growth of 1.8% in 2026, down from 2.5% in March.

Estate agency and property brand Savills is now forecasting a 2% drop this year, while Knight Frank was expecting UK house prices to grow by just 1.5% in 2026 but more recently has suggested there will be more “downward pressure.”

How have mortgage interest rate changes impacted buyer affordability in the UK?

At the start of the year, many analysts hoped falling mortgage rates would help more people onto the property ladder.

Savills predicted the number of people buying homes between 2025 and 2030 will be boosted by falling mortgage rates while more relaxed affordability tests from lenders could boost transaction volumes.

But with mortgage rates rising to well above 5% on average since the outbreak of the Iran war in February, this could impact demand.

Data firm Moneyfacts says the average two-year fixed rate residential mortgage has increased to 5.73%, up from 4.83% at the beginning of March.

More than one million older homeowners have taken out “ultra-long” mortgages in the past three years, creating a potential risk as they will still be paying off into retirement.

The fastest growing group of people taking out mortgages beyond state pension age is those aged under 40, many of whom are first-time buyers.

Longer mortgage terms help make monthly repayments more manageable against a backdrop of high interest rates – but experts warn that having mortgage debt in retirement leaves people at risk of poverty in old age.

That has been helpful for much of this year due to high mortgage rates, while the Bank of England's latest Financial Stability Report warns that around 2.7 million homeowners coming off deals by the end of 2027 will see their monthly repayments rise by almost £150.

The cost of borrowing has been falling in recent months, with interest rates cut to 5% in August and 4.75% in November, that has pushed mortgage rates lower and below 4% in some cases.

But that doesn't appear to be supporting mortgage terms.

A Freedom of Information (FOI) request to the Bank of England, by Sir Steve Webb, a former pensions minister who is now a partner at pensions consultancy LCP, suggests the number of people who will still have a mortgage in retirement is set to remain high even with pricing dropping.

“There is increasing evidence that taking out a mortgage which runs past pension age is an entrenched feature of the mortgage market rather than a temporary blip," says Webb.

"This has profound implications for retirement planning, as it is likely to mean that savers may end up using up already inadequate pension pots to clear a mortgage balance.

"Anyone involved in helping today’s workers plan for their retirement must now factor in the possibility that housing costs will run into retirement or will have to be funded from already meagre pension pots."

Ultra-long mortgages

In the fourth quarter of 2021, 88,933 new mortgages were taken out where the term ran past the homeowner’s state pension age. This represented 31% of all mortgages.

A year later, 113,916 ultra-long home loans were taken out, representing 38% of all mortgages.

By the last quarter of 2023, the figure had dropped to 91,394 – but the proportion had risen to 42% of all new mortgages.

As of the second quarter of 2024, the research shows more than two in five of all new mortgages had terms which run past pension age.

The data also shows that it is young homeowners who are increasingly choosing long mortgage terms.

Over the past year, 35% more under-30s have taken out mortgages that will go past the state pension age, dropping to 23.5% for 30 to 39-year olds and 12.9% for those aged between 40 and 49.

The surge in young people taking out long mortgage terms is a response to soaring interest rates. By stretching the number of years you have to repay the loan – say, to 30 or 40 years – it lowers the monthly mortgage payment.

Mortgage rates are much higher now than they were at the end of 2021, and many lenders have hiked rates over the past month.

The average two-year fixed residential mortgage rate is currently 5.52%, according to Moneyfacts, while the average five-year fixed-rate deal is 5.28%.

The impact on retirement

So, what does this all mean for people’s retirement prospects?

Webb said he’s worried that if homeowners still have a mortgage balance at retirement, “their instinct will be simply to tip out their (already inadequate) pension pots to clear the mortgage balance”.

He added: “We already know that millions of people are not saving enough for their retirement and if some of that limited retirement savings has to be used to clear a mortgage balance at retirement they will be at even greater risk of poverty in old age.

“Serious questions need to be asked of mortgage lenders as to whether this lending is really in the borrower’s best interests.”

Not all of these homeowners will still have repayments to make when they come to retire. Their income may rise, they may move house, and they could swap their long-term mortgage for a shorter one.

They may also choose to overpay their mortgage, effectively paying it off quicker.

Meanwhile, some homeowners may work into their retirement and past state pension age, meaning they will still have income to service their mortgage.

However, Webb said there are still risks. For example, in the past, people mostly paid off their mortgage before pension age, so they could spend their final years in work boosting their pension pot. “Even if mortgages only run to pension age (and not beyond), it deprives people of a period pre-retirement when they might have paid off their mortgage and be able to boost their pension.”

Take someone on a salary of £25,000 a year. If they pay the standard auto-enrolment contributions (5% employee, 3% employer) from the age of 22, they could build up a total retirement fund of £461,000 by the age of 66. This assumes 3.5% salary growth per year, 5% a year investment growth and a 0.75% annual charge.

However, topping up contributions by 4% for 10 years from the age of 55, the age at which a 25-year mortgage term taken out at the age of 30 would be paid off, could result in a total pot of £513,000 – £52,000 more than if no tops-up were made, according to Standard Life.

There is also the issue of working into retirement. While young homeowners may assume they’ll work into their 70s, they don’t know for sure that they will be healthy enough to do so.

Growing numbers of people have dropped out of the labour market before reaching pension age in recent years.

How to make your mortgage more affordable

Overpaying your mortgage can be a great way to reduce the mortgage term and amount of interest you have to pay.

For example, someone who borrowed £200,000 over 25 years on a 3% mortgage rate would pay £948 a month. Overpaying by £200 a month would save them around £21,620 in interest and mean they pay off the mortgage six years earlier than planned.

Someone with the same mortgage on a 6% rate could make a saving of £32,017 by overpaying £100 a month.

Most lenders allow customers on fixed mortgage rates to make overpayments of up to 10% of the outstanding balance in a year.

If you pay more than this, you could be hit with an early repayment charge.

Use our mortgage overpayment calculator to see how using some spare cash to overpay could affect your mortgage.

It’s also a good idea to review your mortgage term. You can do this every time you take out a new deal.

If your income has increased, or your outgoings have fallen - for instance, your children may have started school and you don’t have nursery bills to pay anymore - consider reducing the term so it doesn’t run into your retirement. Decreasing the mortgage term will increase your monthly payments.

On the other hand, if you’re struggling to make your payments each month, you could consider extending the life of your mortgage. The typical mortgage term is 25 years, but 30 and 40-year terms are now available.

Increasing the term will lower the payments and make them more affordable.

House prices will increase over the course of 2024 despite the affordability challenges facing buyers, Savills has predicted.

In its latest five-year forecast for the housing market, the property firm said it believes homes will become 2.5% more expensive this year. This marked a swing of more than five percentage points from its previous set of predictions, which anticipated UK sold prices would shed 3% of their value over the 12-month period.

This more positive outlook comes despite the housing market facing major challenges, including near-record mortgage rates and the impact of inflation on personal finances. The latest monthly house price index (HPI) from Halifax showed there was no customary spring bounce for sellers in April, while separate research by the same bank has found buyers are opting for smaller properties to get on the housing ladder.

Mortgage rates have climbed by around half a percentage point over the past two months, and are not expected to reduce until the Bank of England cuts its interest rate. No cut is expected at May’s Monetary Policy meeting, but analysts expect the UK central bank could act in June or August - a move that is expected to lead to a fall in mortgage rates.

Stronger house prices outlook expected over next five years

Savills said it expects the average UK house price will climb back towards the record levels seen in August 2022 later this year. It said growth of 2.5% would mean the average home would cost £292,000 by the end of the year. This scenario is based on interest rates being cut to 4.5% - a prediction made by Oxford Economics - as well as Savills analysis of Nationwide data.

While GDP growth is expected to remain weak at 0.6%, incomes will nominally rise by 2.7% over the 12 months of 2024. In turn, this would allow an extra 30,000 property transactions to take place compared to the 1.02m seen during 2023.

The property firm then expects the average UK house price to surpass the £300,000 barrier in 2025 as the base rate declines yet further to 3.5%, and another 90,000 property sales occur. House price inflation is then expected to hit at least 4.5% a year until 2028, peaking at 5% in 2027.

Should this scenario occur, the average property would be 21.6% (£61,500) more expensive than it’s set to be this year - a large improvement on the 17.9% increase predicted in Savills last forecast. This situation would be helped by 8.9% GDP growth, which would contribute to income growth of 16.4% over the period.

These figures mean there has been a marked improvement in Savills’ sentiment since November 2023 when it published its last outlook. According to Lucian Cook, head of residential research at Savills, this is because mortgages are now less expensive and less volatile than they were last year.

He said: “In November, a 75% LTV mortgage from Nationwide on a two-year fix cost 5.34%, and mortgage approvals were down below 50,000 per month. The higher cost of debt dampened demand and put downward pressure on prices.

“However, the highly competitive nature of the mortgage market has meant that lenders have fairly aggressively priced in the prospect of cuts in bank base rate, causing buyer confidence, and prices, to recover somewhat. The outlook for economic growth has also slightly improved, pointing to relatively modest house price growth this year, with greater potential over the following few years.”

Cook pointed to the typical Nationwide two-year fix now being half a percentage point lower than that seen in November, and mortgage approvals climbing above 60,000 across both February and March, as evidence of an improving market picture. However, he added that there are potential stumbling blocks for the housing market that could derail the figures in Savills’ forecast.

“Continued uncertainty in the Middle East and higher than expected US inflation have meant that swap rates have continued to rise. Consequently, we are unlikely to see a further meaningful fall in mortgage rates this year, with the potential for short term fluctuations in the cost of debt and house prices, as seen over the past week,” he said.

“Similarly, an Autumn election could impact sentiment towards the end of the year, though polling suggests that most buyers and sellers will have already factored in a change of government, which will minimise the impact."

Which region will have strongest growth in house prices?

In recent HPIs, we’ve seen a growing split between the price growth performance of properties in northern areas compared to southern parts of the UK. Savills expects this trend to continue over the next five years.

Its forecast reckons the North West will see the strongest growth of any region, with the average home seeing price inflation of 28.8% over the period. Yorkshire and the Humber (+28.2%), Wales (+26.4%) and Scotland (25.8%) would also record strong increases.

At the other end of the scale, London is expected to grow the slowest. House prices in the capital are expected to rise 14.2% over the period. The East of England (+18.1%), South East (+18.2%) and South West (+18.7%) are also expected to see more subdued growth than up north. Meanwhile, both Midland regions and the North East are expected to record growth in excess of 22%.

Cook said this was because Savills expects affordability problems could “become a factor” by 2028 - an issue that would particularly hit “already stretched” markets in more expensive parts of the UK.

Rising mortgage costs prompted a decrease in UK house prices in April, the latest Nationwide House Price Index (HPI) has found.

Average property prices fell 0.4% once seasonal effects were taken into account, with a typical home now costing almost £262,000. This figure is more than £11,500 (4%) below the record high recorded in August 2022, but remains roughly a fifth higher than pre-Covid average prices.

It comes as mortgage rates have been hiked by most of the UK’s biggest lenders. The average two-year fix now sits at 5.91%, according to Moneyfacts, approaching a level not seen since the turn of the year. The increases have come amid ongoing uncertainty around when the Bank of England will move to cut interest rates, with wage growth figures and inflation data still higher than market expectations.

Other HPIs have painted a similar picture, with Zoopla recently showing prices fell back slightly in March. But the property listing website also saw signs that buyer sentiment is improving with the number of agreed sales on the up. Likewise, Rightmove found asking prices were rising last month.

Nationwide: ‘affordability pressures’ hitting UK house prices

According to the building society’s HPI for April, house prices grew 0.6% (£800) in real terms compared to April 2023. However, once the effects of the annual housing market spring bounce were taken into account, the average increase turned into a 0.4% reversal. It was a similar story last month, when prices were 1.6% up numerically year-on-year, but down 0.2% after being revised to account for seasonal effects.

Reacting to the findings, Nationwide’s chief economist Robert Gardner said: “The slowdown likely reflects ongoing affordability pressures, with longer term interest rates rising in recent months, reversing the steep fall seen around the turn of the year.” He added that these cost issues are particularly impacting first-time buyers.

He pointed to a poll conducted by Censuswide for Nationwide in mid-March when mortgage rates were starting to creep up. Of the 1,000 prospective first-timers interviewed, 49% said they had delayed their plans to buy over the past year. Among this group, 53% were delaying because house prices are “too high”, while a further 41% said higher mortgage costs were stopping them from buying a first property.

More than two-thirds of those who were polled said they had between £0 and £10,000 saved towards a deposit, well-short of the £22,000 that Nationwide said constitutes a 10% deposit on a typical bottom-rung home. Another 84% said the cost of living crisis had impacted their plans to purchase because, for example, they were struggling to save enough for a deposit.

Recent research by Go.Compare found that the current average UK salary is only enough to afford a flat, with a typical property requiring a prospective homeowner to earn £20,000 above the national average wage. This could prove to be problematic for the market as a whole given Halifax found smaller homes were driving market growth in the year to February.

Is the house price drop temporary?

While the fall in house prices on the Nationwide HPI once again confounded market expectations (the consensus had been that there would be a small 0.2% increase in April), there is an expectation that prices and market activity will pick up again soon.

Capital Economics’ assistant economist Imogen Pattison said mortgage affordability constraints should ease as she expects the Bank of England will cut interest rates.“In the coming months, we suspect mortgage rates will hover around their April level, keeping demand subdued. We expect that will prevent renewed gains in house prices in the near term,” she said. “But if we are right to think that Bank Rate will be cut further than most expect this year, mortgage rates should fall to just over 4% by the end of 2024, leaving house prices up 3% year-on-year.”

Sarah Coles, head of personal finance at Hargreaves Lansdown, disagrees with Pattison’s expectation that a rate drop will be significant enough to turn the tide. Describing Nationwide’s figures as an “April washout”, she said: “Those who were optimistic about an imminent cut in rates at the start of this year will be getting increasingly frustrated. And things aren’t set to get any easier in the immediate future either, because the market isn't expecting rate cuts until August or September – although June can’t be ruled out entirely. It's also expecting just two or three cuts this year, so we’re not going to see massive movements in mortgage rates.”

However, Coles said prices could “eke out some growth regardless” as buyers may “take the plunge” anyway. She added: “It’s why we’re seeing mortgage approvals continue to rise. However, we might not get a significant pick up in prices until mortgage rates start to feel substantially different.”

Homeowners and prospective buyers have been hit this week by further increases to mortgage rates.

Some of the UK’s biggest lenders, including NatWest, Santander and Nationwide, hiked mortgage rates on two and five-year fixed deals by more than 0.2 percentage points on Monday (29 April). Santander followed this up with another set of 0.2% hikes on Thursday (2 May).

The slight uptick in rates since late February has already had an impact on the housing market. Nationwide’s most recent House Prices Index found house prices fell again in April as a result of the hikes. Meanwhile, Go.Compare research has found affordability remains an issue more generally - particularly in southern parts of England.

At least some of the blame lies with the 16-year high Bank of England interest rate. Swap rates, which are highly sensitive to any market uncertainty, soared earlier this month when the monthly average wage growth and headline inflation datasets came in hotter than expected.

It was feared both economic indicators would mean the UK central bank would opt to delay cuts to the base rate in a bid to ensure consumer price inflation gets back to its 2% target. But is the Bank of England entirely to blame for the rise in mortgage rates we’re currently seeing?

How much have mortgage rates risen?

According to rate comparison website Moneyfacts, average rates sat at 5.91% for a two-year fix and 5.49% for a five-year deal as of Thursday (2 May). It means rates have crept up by almost half a percentage point over the last two months.

Mortgage fixes had been trending downwards in January and February ahead of expected bank rate cuts. While the gradual change of direction and the number of lenders upping their rates has created a bit of panic, especially for the 1.5 million households who will have to remortgage at some point in 2024, there is an important caveat to note.

Current rates are still well-below the highs seen over the summer of 2023. Last August, two-year rates threatened to top 7% and remained north of 6% until the new year. Meanwhile, five-year deals came in at almost 6.4% at their peak. Also, not all providers are hiking rates. For example, on Tuesday, Skipton Building Society said it was cutting some of its fixed and tracker products, and relaunching its high loan-to-value (LTV) products.

The other important thing to note is that the amount of products to choose from has risen. As of 30 April, there were 6,546 residential mortgage products to choose from. Not only was this 2% (150 products) higher than the previous day’s tally, but it’s almost six-times the number that were available to consumers in the wake of Liz Truss’s mini-Budget, when lenders pulled deals at a rapid rate.

Why are mortgage rates rising?

Some of the blame for the increase in mortgage rates can be blamed on the ongoing uncertainty over when the Bank of England will cut its interest rate. Last week, Danny Belton, head of lending at Mortgage Advice Bureau, told MoneyWeek that “swap rates have ticked up slightly on Bank of England interest rate expectations, and this is prompting a shift in the market."

Nicholas Mendes, mortgage technical director at broker John Charcol echoed Belton, adding: "The market is in dire need of some positive movement from the Bank of England. Until we see a rate reduction we're going to see a period of rate increases as markets start to be unsettled.”

This uncertainty was only increased by separate, contradictory speeches from senior figures at the Bank of England. Deputy governor Dave Ramsden suggested inflation - the economic force the central bank attempts to control through interest rates - was not as embedded in the UK economy as had been feared. Days later, the Bank’s chief economist Huw Pill said interest rate cuts remained “some way off”.

While this explains some of the upward shift in mortgage rates, another factor is also contributing to the rate hikes we’re seeing. Mortgage adviser at Ash Ridge, Jane King, told MoneyWeek that lenders were trying to avoid a surge in customer numbers. Most people who are due to remortgage can lock in a rate up to six months ahead of their current fix expiring, and hop onto cheaper rates when they become available.

She said: “I was told by one lender that they cannot reduce rates now as they have to be wary of borrowers ‘waiting’ with offers, product transfers, etc. on rates that were higher a few months back. If they drop rates too much a lot of these borrowers will ditch their current rate in a stampede to switch to the lower rate.

“I myself have a long list of clients who want to jump to a lower rate if rates reduce. This will cause a mass of additional administration which no doubt the lenders want to avoid as we go into the busy spring market. Therefore at the moment it makes sense for lenders to keep rates higher until this concern subsides.”

Should you fix your mortgage?

While mortgage rates are on the up, the expectation is that we’re heading towards an interest rate cutting cycle. The markets currently believe that when the Bank of England makes its first cut, mortgage rates will start to come down. Expectations of how soon and how fast the central bank will go are split, with some saying we’ll see significant cuts from June and others expecting smaller reductions later in the summer.

In the here and now, the expectation is that fixed rates will remain high. As you’ll have read higher up in this piece, you can lock in a rate now and switch to a cheaper one closer to your current deal’s expiry date. But, if you’re not happy with any of the deals at your disposal, how do the alternatives compare?

According to Moneyfacts, the average two-year tracker mortgage - a deal that goes up or down depending on the Bank Rate - is sitting at 6.12%. Meanwhile, the typical standard variable rate (SVR) - the type of deal you roll onto if your fix expires - sits at 8.18%.

Tracker mortgages tend to be more flexible than fixes as you can usually break out of them more easily. When interest rates fall, tracker rates also tend to reduce more quickly than fixes. The other option - an SVR - offers even more flexibility, but you’ll currently be paying a significantly higher rate.

So, what should you do if you’re coming to the end of your deal? John Charcol’s Nicholas Mendes says: “Given the nature of the market, those who may be hesitant to commit to a deal should continue to reach out to a broker and discuss options.

“While we anticipate a reduction in fixed rates, the timeline for this adjustment may be somewhat longer than initially expected. It is important to note that, even if you secure a deal, there is still flexibility to make changes close to completion should a more favourable offer become available.”

UK sold house prices suffered another fall in February, the latest Office for National Statistics (ONS) House Price Index has found.

According to Land Registry data analysed by the UK’s official statistics body, final sale prices fell 0.2% (£600) year-on-year to £281,000. However, they grew 0.4% month-on-month after the fall registered in January’s figures was revised sharply downwards from a 0.6% fall to a 1.3% drop.

February’s statistics are initial estimates and could yet go up or down. To see how prices have changed in your area, you should check out the ONS’s house prices tool, which also shows how rents are changing.

The ONS said the biggest annual decrease was recorded in Wales, where prices fell 1.2% (£2,500) compared to February 2023. In England, the average final cost of a home slumped below £300,000 to £298,000 after a 1.1% (£3,000) fall. Scotland (+5.6% to £188,000) and Northern Ireland (+1.4% to £178,000) both saw growth.

It comes as the housing market remains sluggish in the face of a volatile period for mortgage rates. While inflation has gone down, uncertainty about when the Bank of England will start to cut interest rates is keeping mortgage pricing elevated.

What does ONS HPI tell us about UK sold house prices?

The ONS’s monthly analysis of Land Registry data usually lags behind other indices of housing market activity. For example, Rightmove can show us consumer sentiment as it was only a few weeks ago, whereas the ONS takes almost two months to give us initial estimates.

But the official statistics body’s reports provide the most authoritative picture of exactly what’s been happening to house prices in recent times. Its latest assessment shows us that, while UK house prices are lagging overall, there is a divergence of performance in different regions and housing categories.

For example, prices remain up year-on-year in northern areas. The North East saw the strongest growth of any UK region, with prices going up 2.9% against the year, and 3.2% month-on-month - albeit from the lowest average price point in the UK at £160,406.

Meanwhile, in southern England, price deflation continued. The West Midlands saw the biggest fall outside of London, dropping 2.9% against the year, and 1.2% month-on-month to an average price of £242,429.

As for London, prices were 4.8% down compared to February 2023, and 0.7% lower than in January. It’s average price of £502,690 was still almost £130,000 above the next most expensive region - the South East, where you can expect to pay just over £373,000 for a home (this figure was 2.1% down year-on-year, but 1.1% up on the month).

In terms of property types, the ONS figures suggested that the top end of the market was performing the strongest - something that was suggested by recent Rightmove research into the UK’s most expensive streets. Semi-detached homes saw prices grow 0.7% (almost £2,000) year-on-year to an average of £274,252, while detached properties saw a 0.5% (almost £2,000) boost to £435,398.

Terraced homes saw their value drop 1% (nearly £2,500) to £229,443 over the period, while flats and maisonettes saw typical prices fall by almost exactly the same amount to £227,188. The average cost of a first-time buyer home was 0.3% lower than a year ago, but 0.7% higher month-on-month at £234,654.

What’s happening to mortgage rates?

The latest ONS data has captured a period when the decline in mortgage rates began to slow - and even reverse - in the wake of worse-than-expected inflation data. With the rate of UK price rises proving to be stickier than expected, the Bank of England has kept its base rate frozen at a record high. It appears likely the next two months of ONS data will show subdued prices given this disruption has continued.

More recent HPIs from lenders suggest the issue continued into March, with Nationwide directly blaming mortgages for a worse-than-expected set of data, and Halifax showing a similar picture. With sturdy wage growth and the latest inflation data, analysts are now warning that we should expect rates to remain higher for longer.

Nicholas Mendes, mortgage technical manager at broker John Charcol, said: Mortgage holders coming to the end of their fixed deals this year and in early 2025 will need to be prepared to see higher rates than early predictions. Initial forecasts of a 3.5% fixed rate by August to late September are very unlikely, with any sign of such a deal now pushed back to later in the year.

“While the temptation will be to wait and hold out for the best deal, it is strongly recommended that you speak with a broker so you can regularly understand the options available to you until your deal is due to expire.”

According to Moneyfacts Compare, the typical rate for a two-year fix last week was 5.8%, with a five-year fix coming in at 5.39%. These rates are lower than the peak seen in 2023, but remain well-above the levels seen in the late-2010s.

First-time buyers are being given a new leg-up the property ladder with a mortgage that could potentially let borrowers access up to 99% loan-to-value (LTV).

Mortgage rates hit decade highs last year as interest rates rose and while home loan pricing has dropped recently, the high cost of homeownership remains a barrier for many buyers.

There had been rumours that the government was working on a state-backed 1% mortgage deposit scheme but that failed to materialise in the Spring Budget.

However, Yorkshire Building Society has stepped in with its own product exclusively for first-time buyers.

It has launched a £5k deposit mortgage product that can be used on homes worth up to £500,000, effectively providing a 99% LTV loan.

“The bunny is out the hat just in time for Easter with this innovative product aimed at those who need it the most,” says Craig Fish, director at Lodestone Mortgages & Protection.

“First-time buyers are those who stimulate movement further up the property ladder, so this product should solve the chicken and egg situation that the UK property market currently faces. 

"It's helping those who need it the most to get on the property ladder, and subsequently allowing those already on the ladder to move further up it.”

But there are risks to be aware of.

How the £5k deposit mortgage works

Pulling together a deposit to buy a property can often be the biggest barrier for first-time buyers.

The typical price for a first-time buyer home is £235,020, according to the Land Registry.

A buyer would need a deposit of around £23,500 to get a mortgage for a typical home but this figure varies regionally and may be higher in the south of England and London where property prices tend to be more expensive.

Many first-time buyers will also be struggling with high rents, making it hard to save for a large deposit.

Yorkshire Building Society’s mortgage aims to help.

It is offering a five-year fixed rate at 5.99% and, as the name suggests, buyers just need a £5,000 deposit.

So, on a £235,020 property, a first-time buyer would be getting a 97% LTV mortgage.

Applicants will still need to pass affordability tests to prove they have enough income to afford the loan.

The repayments on a 97% LTV mortgage using this product for a £235,020 property would be £1,481 per month on a 25-year term.

There are some restrictions though that could limit demand.

The maximum property value is £500,000 and it can’t be used for flats or new-build houses, which are typically popular among first-time buyers.

The deal is also not available in Northern Ireland.

If you’re applying for a joint mortgage, one applicant must qualify as a first-time buyer. Neither applicant can currently own a property and you must both be aged 70 or under at the end of your planned mortgage term.

Is a low deposit mortgage a good idea?

This isn’t the first attempt to help struggling first-time buyers.

Many had support from the Help to Buy Scheme , which provided government-backed mortgages worth up to 95% LTV on new-builds before it ended last year.

Skipton Building Society recently tried to address this last year with the launch of the 100% LTV Track Record mortgage aimed at tenants with at least a 12-month history of paying rent on time.

The Yorkshire Building Society product provides a viable option if you have a small deposit but it is important to consider the costs.

If you maxed out the loan for a £500,000 property, the monthly mortgage repayments on a 25-year term would be £3,186 a month.

It may be possible to access cheaper mortgage rates if you save for a larger deposit and go for a 95% or 90% LTV loan instead.

For example, HSBC currently has a five-year fixed rate for 90% LTV at 4.62%. The monthly repayments on a £500,000 property over a 25-year term would be £373 cheaper at £2,813.

There is also a higher risk of falling into negative equity if you borrow a large amount with a small deposit to purchase a home.

Some analysts expect house prices to fall by as much as 4% this year, which may not give you much of a margin if you have a 1% deposit loan.

Akhil Mair, director of Our Mortgage Broker, told the Newspage agency: “With house prices being as unpredictable as ever, there's a legitimate worry about the potential for negative equity down the line. 

“It's a delicate balance between innovation and risk, and one that warrants careful consideration. 

“Nonetheless, any initiative aimed at helping first-time buyers achieve their homeownership dreams is a step in the right direction. Let's hope for the best and keep a watchful eye on how this unfolds.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, says the threat of negative equity is greater the higher the level of borrowing.

"With only five-year products available, hopefully over that period of time the value of the property will increase," he says.

"There is no interest-only option so borrowers will be paying back a small amount of the capital as well as interest each month, improving their equity stake.

“Critics may question what will happen if the buyer loses their job and can’t afford their mortgage payments but the same rings true for renters. Not everyone can move back in with mum and dad."

High interest rates are yet to fully hit households, the Bank of England (BoE) has warned, with millions of mortgage borrowers set to pay between £200 and £1,000 extra for their home loan per month by the end of 2024.

The BoE’s latest Financial Stability Report said while interest rates may have peaked, they are still likely to remain higher for longer.

Millions of borrowers have already felt the impact of higher interest rates, with 5m households seeing their home loan repriced higher when they remortgaged.

It comes as interest rates have soared since December 2021 from 0.1% to 5.25% currently, while average mortgage pricing went above 6% earlier this year.

Mortgage rates have started to fall and interest rates have been held in recent months, while house prices appear to be growing again on a monthly basis.

But the average two-year fixed rate is now at 6% and the typical five-year deal is at 5.61% compared with pricing ranging from 1% to 2% back in 2021.

It is these changes and the wider cost of living crisis that the BoE says millions of households are yet to face.

“Household finances remain stretched by increased living costs and higher interest rates, some of which has yet to be reflected in higher mortgage repayments,” says the BoE.

How higher mortgage rates will hit homeowners

Average mortgage rates may be dropping but the BoE highlights that they remain higher than in recent years.

Higher rates are expected to hit 5 million households by 2026, the BoE says, adding around £240 to monthly mortgage repayments on a typical home loan.

Almost 500,000 borrowers will see up to £200 added to their monthly mortgage repayments by the end of 2024, according to the BoE, while 400,000 will be paying an extra £300. 

Around 200,000 will be paying between £500 and £750 more, while 100,000 will see their monthly repayments rise by more than £1,000 per month, according to BoE estimates.

The increases mean the proportion of post-tax income spent on mortgage payments across households is projected to increase from 6.8% in the second quarter of 2023 to almost 9% by the end of 2026.

This is still below the peaks seen during the global financial crisis and the 1990s recession, the BoE says.

Landlords are also facing higher costs, the BoE said, due to higher interest rates on buy-to-let mortgages.

These costs are being passed on to tenants, with new rents up 10.5% annually in September and by 6.1% in October.

How to prepare for higher mortgage repayments

Banks have agreed to a Mortgage Charter from the Treasury on how to treat customers facing difficulties during the cost of living crisis.

This includes letting borrowers switch to an interest-only basis or extend their mortgage term.

There are risks though as paying by interest only means there will be a large chunk of repayments to pay-off at the end of a deal while extending the term will be more expensive in the long-run.

Michelle Lawson, director at Lawson Financial, says most people are aware that mortgage rates have increased over the past 18mths or so unless they have been sleeping.

“There will be people who will sadly not be in a position to afford their new mortgage payments however, most have had the opportunity to try and adapt their finances before their mortgage product comes to an end,” she says.

“The stress testing has worked on these applicants as majority can pay, the hardest thing is accepting the increased costs in a world where everything has gone up.

“Consumers should take advice from a good broker to ensure they are looking at all possible avenues and importantly, rates have come down from where they were and long may this continue.”

Peter Stamford, director at The Mortgage Uni, says he is nudging homeowners to tighten their belts, looking at everything from Netflix to credit cards. Debt consolidation's becoming a hot topic, helping people manage not just mortgages but living costs too.

“Stay sharp, maybe overpay if you can, and always, always chat with a broker,” he says.

“Rates are a bit of a rollercoaster, but being prepared and proactive is key.”

The number of households in negative equity will jump by almost 50% over the next couple of years, leaving thousands as potential mortgage prisoners with homes that are hard-to-sell or remortgage.

That’s according to the latest economic forecast from the National Institute of Economic and Social Research think tank, which cautioned that the UK is set for “a decade in the doldrums”.

The analysis from the NIESR suggested that the combination of higher interest rates and falling real wages would further lower demand for property, since prospective buyers are simply unable to meet the affordability tests of mortgage lenders.

This in turn will result in house prices dropping by around 6.5% between now and the second quarter of 2023, leading to a 50,000 jump in the number of households in negative equity to a total of around 166,000.

The report suggests this will be seen most keenly in the West Midlands and Wales.

What does negative equity mean for me?

Negative equity can present a real problem for homeowners.

Equity is the term used to describe the value of a person’s stake in a property which is mortgage free. So if you have a home worth £300,000 and an outstanding mortgage of £200,000, then you hold £100,000 in equity.

Negative equity is where the size of your mortgage is greater than the value of your property, likely because house prices have dropped since you bought it.

If you are in negative equity then you will struggle to remortgage. No lenders offer 100% loan-to-value mortgages, while even the level of choice for those looking for a 90-95% mortgage is greatly reduced.

The inability to remortgage means you will have no choice but to move onto your lender’s standard variable rate (SVR) once your initial fixed or tracker rate comes to an end. This can mean a significant increase to the size of your monthly mortgage repayments, since this rate is set by the lender and can be increased at any time, irrespective of what’s happening with base rate.

According to data from Moneyfacts, the average SVR is currently 8.19%.

Negative equity can also prove a difficult barrier if you want to move. The price that you can obtain by selling the property will not be enough to clear the outstanding mortgage, let alone provide a sum that can be used as a deposit for a new home. If you do wish to buy somewhere new, you will need to have the cash to hand to not only settle what’s left of the original mortgage, as well as put down a deposit.

However, it’s important to emphasise that being in negative equity does not mean you will lose your home. So long as you keep up your repayments, the property will remain yours ‒ the issue is that those repayments will become more expensive as a result of being in negative equity.

How to avoid negative equity

There are two main paths away from negative equity. You need to either reduce the size of your outstanding mortgage so that it falls below the value of the property, or you need to increase the value of the property so that it once again exceeds the size of the mortgage.

Over time the size of the mortgage will fall anyway, so long as you keep up your repayments. However this can be accelerated by making mortgage overpayments. Most mortgages allow you to overpay by up to 10% of the outstanding balance each year, without incurring any additional charges.

Overpayments come with the added benefit of allowing you to pay your mortgage off ahead of schedule, saving thousands on interest payments in the process.

Alternatively, you can look to improve the value of your property. This could be through home improvements, like converting the attic into an additional room or adding an extension, though bear in mind that there is no guarantee this will boost your home’s value. 

The NIESR believes that property prices will fall because of dropping demand from potential homebuyers, and there are indications that this is already happening. According to the most recent Halifax house price index, property prices dropped by an average of 3.2% in the 12 months to October.

That’s the result of rising interest rates, making mortgages less affordable for buyers up and down the housing ladder. Understandably this has meant many would-be buyers have put their plans on hold, and so the falling demand has meant house prices have dropped.

But over time this can change. As interest rates start to fall once more, we may see interest from potential buyers increase too. Given that the UK continues to have an undersupply of property, any increase in demand will likely push house prices back up as well. 

So you could find yourself out of negative equity without choosing to overpay on your mortgage or introduce home improvements, but simply through the passage of time. 

Variable and tracker mortgages are now more than twice as popular compared to just over six months ago, according to analysis, as higher borrowing costs have switched up borrower behaviour.

Borrowers are increasingly interested in shorter-term fixed deals – such as two year fixes instead of five year fixes – as mortgage rates have risen sharply in recent weeks, search activity on the Moneyfacts website found.

Yet at the same time, more people are thinking about taking a punt on the future path of interest rates with a variable or tracker rate mortgage, in the hope money markets have overblown expectations of rate rises and the Bank of England’s Monetary Policy Committee starts to cut the base rate again.

Adam French, head of consumer finance at Moneyfacts, said: “The economic consequences of the conflict in the Middle East have turned interest rate expectations on their head, pushing up borrowing costs and changing borrower behaviour.

“With fixed mortgage rates rising sharply in a short space of time, more borrowers appear willing to gamble on rates falling sooner than markets currently expect.”

How mortgage rates have risen

Home buyers would have been hoping for a fall in mortgage costs in 2026, but ongoing tensions in the Middle East since the end of February have put pricing into flux.

Borrowers were starting to benefit from falling rates at the start of the year, with interest rates steadily falling as inflation slowed to 3%, but mortgage pricing surged in March following the US-Israeli invasion of Iran.

Peace talks in recent weeks have led to the market cooling somewhat, however rates are still significantly higher than prior to the conflict.

For example, the average two year fixed rate mortgage was 4.85% on 1 February. By 15 May that had risen to 5.75% – an increase of 90 basis points.

For a five year fix, the rise has not been quite as big. On 1 February the average rate was 4.94%. As of 15 May it was 5.67% – a rise of 73 basis points.

By comparison, on 1 February, prior to the US-Israeli attack on Iran and the surrounding Middle East, the average two year variable rate mortgage was 4.41%. On 15 May it was 4.56%, an increase of just 15 basis points.

Interest in variable and tracker mortgages increases

Variable and tracker mortgages remain a minority choice. But the increase in interest in these mortgages points to a view among borrowers that rates could ease in the near term.

“Tracker and discounted variable mortgages can appear more attractive when fixed rates rise quickly, as they typically start lower,” said French.

However, he pointed out, they also pass much more of the risk of future base rate or standard variable rate changes directly onto the borrower, rather than the lender taking on that risk through a fixed-rate product.

Borrowers also seem keen on hedging their bets with shorter-term fixed options. With five-year fixes rising by more than 70 basis points since February, according to Moneyfacts data, many borrowers appear to be favouring two-year deals in the hope the current spike in rates proves temporary.

What is driving mortgage rates?

An interest rate cut in December had helped mortgage pricing fall below 5% and even below 4% in some cases, prompting a drop in mortgage rates in the build up to the new year, as the cost of borrowing was expected to continue falling.

At the start of the year, the Bank of England’s (BoE) Monetary Policy Committee (MPC) had been expected to lower interest rates twice in 2026, but instead it has held rates at its last three meetings in February, March and April.

The base rate has stayed at 3.75% since the start of 2026 and swap rates, which help determine the cost of fixed-rate mortgages, surged after the outbreak of the conflict in Iran. This caused mortgage rates to rise rapidly.

The rate of increase in swap rates has slowed in recent weeks, although they remain significantly higher than prior to tensions in the Middle East.

We reveal how to get the best deal when remortgaging.

What are swap rates?

Swap rates are agreed between financial institutions, like a lender and an insurance company, and refer to the rate of interest one agrees to pay the other in return for funds over a set period of time.

Ultimately, they reflect the wholesale cost of funding for banks that influences how they price credit such as loans and mortgages.

This means that if swap rates go higher, it’s more expensive for the lender to borrow and it will have to hike rates on its mortgage products.

Swap rates are based on what markets believe will happen to interest rates and inflation in the future.

With the ongoing conflict in Iran stoking fears that inflation could spike globally, leading to higher interest rates, this has seen swap rates rise.

In turn, lenders have been pushing up their mortgage rates as it becomes more expensive for them to borrow money.

What is the forecast for interest rates?

What happens with mortgage rates depends on the direction of interest rates. At the start of the year, the BoE had been expected to cut interest rates twice in 2026. However, the US-Israeli attack on Iran on 28 February scuppered these plans.

In its April meeting, the MPC again voted to maintain interest rates at 3.75%. Huw Pill, the Bank's chief economist, was the only member of the Bank's nine-member Monetary Policy Committee to vote for a rate rise.

Predictions about the future direction of interest rates will drive mortgage rates. And what happens with interest rates will largely depend on inflation – the cost of goods and services, which are heavily influenced by energy prices.

At its April meeting, the MPC again pointed to how the war in the Middle East is disrupting the supply of energy, raising its price and pushing up households’ motor fuel costs; “we expect utility bills to increase as well”, it said.

Inflation increased by 3.3% in the 12 months to March – higher than the MPC predicted in February, before the start of the war, and largely driven by increases in transportation costs, especially motor fuels. “It is likely that it will be higher later this year,” the Committee said.

It also expects energy price rises to have knock-on effects. As businesses’ bills go up, it is likely they will increase their own prices to cover the cost and workers may ask for higher wages as their bills also rise.

“The impact on the economy and inflation will depend on how much energy prices go up and how long they stay raised,” the MPC said.

Given the context, some economists now believe the MPC is likely to hold rates in 2026, and perhaps even raise them.

Advisory firm Oxford Economics believes the MPC will hold rates where they are until 2027.

Meanwhile, Pantheon Macroeconomics expects interest rates to be hiked twice in 2026, followed by three cuts in 2027.

The Bank of England appeared to sound its concerns over future interest rates in its most recent Monetary Policy Summary report in April.

In it were three scenarios that could occur due to energy shocks caused by the Iran conflict, with the worst-case scenario suggesting inflation will peak at 6.2% in early 2027, in which case interest rates could rise as high as 5.25%.

However, on 18 May, the International Monetary Fund (IMF) said the Bank of England will not need to raise interest rates this year to combat the effects of rising energy costs.

The IMF has assessed UK monetary policy is already "sufficiently restrictive to ensure that second-round effects from higher energy prices to inflation are contained”, it said in its latest update on the state of the UK economy.

The report also upgraded its forecast for UK economic growth this year to 1%, up from the 0.8% figure it had expected only last month.

Should you fix your mortgage?

If you are one of the estimated 1.8 million people on a fixed-rate mortgage that is expiring this year, according to UK Finance, it could be a good idea to hedge your bets and fix now.

Fixed rates can offer you certainty over what you’ll pay in interest over the course of the deal, even if rates do rise.

Plus, under the Financial Conduct Authority’s (FCA) mortgage charter, you can lock in a new fixed-rate deal six months before your current one is due to end and then shift to another, more competitive one, later on.

Mendes, from John Charcol, said: “In this kind of market, the better approach is often to lock in an affordable option and then switch if pricing improves before completion.”

What about variable mortgage rates?

Standard Variable Rate mortgages – the ones borrowers tend to roll onto once their fixed rate deal comes to an end – are still an expensive option. The average Standard Variable Rate (SVR) was 7.13% as of 1 May, according to Moneyfacts.

Those on a high SVR would be wise to switch onto a fixed rate now. Even if fixed rates fall further, the money saved from getting rid of an expensive SVR earlier could make it worth it.

You could also opt for a tracker mortgage which more directly follows the BoE base rate.

David Hollingworth, associate director at mortgage broker L&C Mortgages, said: “Anyone that is sitting on a standard variable rate because they are hoping for more drops in fixed deals should consider whether a tracker would be a better option.

“The SVR is likely to be substantially higher and even if fixed rates do reduce over time, each month on SVR could be costing a lot more.”

What about buy-to-let mortgage rates?

Buy-to-let fixed mortgage rates have soared due to unrest in the Middle East.

The average two-year rate was at 4.65% on 2 March, but sits at 5.35% as of 18 May, according to Moneyfacts. The five-year rate was at 5.04% on 2 March, but 5.66% as of 18 May.

Overall buy-to-let product choice has fallen sharply since the start of the conflict in the Middle East too. On March 2, there were 5,696 buy-to-let mortgage products available but just 5,052 on 18 May, according to Moneyfacts.

Despite recent buy-to-let mortgage rate increases, they are still considered competitive compared to how high they have been over the past few years – they were pushing 7% in the summer of 2023.

Landlords will have been hoping for a fall in mortgage rates later this year to help offset the 5% stamp duty surcharge, less generous mortgage interest tax relief and higher income tax charges on property introduced in the 2025 Autumn Budget and coming into effect in April 2027.

Landlords have also had to ensure they meet the new Renters’ Rights Act rules, which came into force on 1 May. In addition, they will be expected to invest up to £10,000 to reach an EPC rating of C by October 2030. Growing costs could dampen the profitability of buy-to-let.

What mortgage support is available?

Mortgage rates are much higher than when many people would have last remortgaged. Some homeowners will be coming off rates as low as 1% or 2%.

If you’re struggling to make your mortgage repayments, the good news is that lenders representing 90% of the mortgage market have signed up to the government’s mortgage charter. They include the big banks like Halifax, HSBC and Santander and building societies like Nationwide, Leeds and Skipton.

The charter is a series of support measures intended to help those in difficulty. Borrowers will be able to make a temporary change to their mortgage for six months to give them some breathing space, such as switching to interest-only payments or extending their mortgage term to reduce their monthly payments. Customers have the option to revert to their original term within six months by contacting their lender.

About 1.7 million mortgages have benefitted from the mortgage charter since it was introduced in June 2023, according to the City watchdog.

Meanwhile, there is a 12-month delay before repossession proceedings can start against those who have missed payments. Regardless of whether your lender has signed up to the charter, all lenders also have a range of measures in place for customers experiencing difficulties.

Should I overpay my mortgage?

If you’ve got some spare cash and you're on a low rate, overpaying your mortgage can be a good way to protect yourself before your mortgage deal expires and you have to remortgage at a higher rate.

Our mortgage overpayment calculator shows how your monthly repayments will change and help you decide if it is worth it.

Recent research from finance broker Clifton Private Finance found someone on a £250,000 mortgage paying it off over 25 years at 5% could save £40,000 in interest and shave four years off the term by overpaying by just £150 a month.

“You can’t control the market, but you can control how you respond to it. Rates change, lenders adjust their products, and the wider environment is always shifting,” said George Abouzolof, senior mortgage advisor at Clifton.

“But choosing whether to overpay your mortgage, and by how much, is entirely within your control. It’s one of the few levers homeowners can pull to improve their long-term financial position.”

If you’re facing higher mortgage rates when your current deal expires, it’s worth considering using the flexible feature of a home loan that allows you to soften the blow.

By overpaying on your mortgage, you can help reduce the impact of a repayment hike when remortgaging comes around.

That’s because when you come to remortgage, the balance will be reduced and so you’ll be paying interest on a smaller sum.

Many borrowers coming to the end of a fixed rate will be faced with remortgage deals that are far higher than we've all been used to. So if you have cash to spare, you may be thinking about whether you should overpay your mortgage.

Overpaying your mortgage means you can drastically reduce the interest you pay to your lender allowing you to become mortgage-free sooner. Borrowers who overpay and reduce their mortgage's loan-to-value (LTV) may also find that they have access to a broader range of better rates when the time comes to remortgage.

You can overpay as a regular monthly amount, as a lump sum or a combination of both. Most lenders let their customers repay up to 10% of their mortgage balance a year without charging an early repayment penalty – some banks allow higher overpayments. Make sure you check the terms of your mortgage in the original paperwork. If you can’t find it, contact your lender.

Once you know how much you can overpay you can start to crunch the numbers. Our mortgage overpayment calculator helps you work out how much your monthly balance may change as a result of making overpayments and helps you decide if it is worth it.

Mortgage overpayment calculator

How overpaying your mortgage can save you thousands in interest

Overpaying your home loan can have a big impact.

For a homeowner with a £300,000 mortgage on a two-year fixed rate of 5.39%, over a 25-year term, overpaying by £100 a month would save £29,030 in interest and mean you'll be mortgage-free two years and six months early, according to the broker L&C Mortgages.

Alternatively, a one-off lump sum overpayment of £5,000 would save you £13,701 in interest and would reduce your mortgage term by 10 months.

Even if you're on a cheaper mortgage deal, overpaying can have a meaningful impact.

For example, if you overpaid by £100 a month on a £300,000 mortgage, with a rate of 2.15%, you'd save £8,734 in interest and your mortgage would be paid off two years and four months sooner.

If you used a one-off lump sum overpayment of £5,000, with the 2.15% rate you'd pay £3,496 less in interest and be mortgage-free seven months early.

What to consider before overpaying your mortgage

Before deciding to plough your money into your mortgage, it’s important to make sure it’s the right choice.

The first step is to ensure that you have a robust savings buffer in place equal to three or six months of your income to cover living expenses should anything happen to your income.

If that’s in place and you’re comfortable that you have money to spare to overpay on your mortgage, you should speak to your lender to check the terms of your loan to check if your mortgage allows overpayments and what you can overpay without penalty.

It’s worth reminding yourself that once you hand it over as an overpayment, you no longer have access to that cash so you need to be sure it’s money you don’t need.

We highlight what to consider if you're deciding whether to overpay your mortgage or invest in a separate guide.

Are mortgage overpayments worth it?

The sooner you pay off the loan, the less interest you will pay. Overpaying will help reduce the mortgage balance that you pay interest on and help you pay it off faster.

Using some of your savings to reduce your mortgage debt might also benefit you if it places you into a lower loan-to-value (LTV) bracket. Lenders offer cheaper rates the more equity you have in your home, so by overpaying you might tip into a lower LTV bracket and become eligible for a better rate

For most lenders the cheapest mortgage rates are offered to those with an LTV of 60% or less. So if your LTV was just above that, using savings to pay off some of the mortgage means you could benefit from a reduced rate of interest when you next come to remortgage.

Whether it’s worth it for you will depend on your personal circumstances, financial situation and goals.

If you need advice you can speak to a mortgage broker who can help you with what’s right for you.

We explore offset mortgages in our "what is an offset mortgage" guide.

Borrowers continue to see mortgage deals pulled and average interest rates rise after the Bank of England raised the base rate from 4.5% to 5% last month.

 After almost two months of market turmoil, the average two-year fixed-rate residential mortgage rate has reached  6.79%, according to data analyst Moneyfacts. This surpasses the levels seen in the aftermath of last autumn’s mini-budget, reaching its highest level in 15 years. 

Figures from the data analyst Moneyfacts show the choice of residential mortgage products has dramatically fluctuated and fallen by almost 16% since 23 May: 4,495 on 20 July - that’s 890 less than the 5,385 deals that were available on the day before the   announcement of worse-than-expected inflation figures.

NatWest is the latest to make changes, amid “changing market conditions”, increasing the cost of its fixed rate mortgages for new purchase and remortgage customers by up to 0.4 percentage points while Virgin Money is increasing the rates on selected fixed deals for remortgage by up to 0.22 percentage points. 

Several lenders have temporarily removed mortgage products before putting them back on sale in recent weeks, as mortgage rates have increased, amid expectations that interest rates will remain higher for longer.

The drop in product availability will affect around 116,000 households that are coming off fixed-rate deals this month. Over 1.4m households already face mortgage rate hike in 2023.

All 639,000 homeowners on variable rate mortgages linked to the base rate will see an automatic increase in their payments.

The 0.5 point increase could add £47.43, according to the trade association UK Finance.

Lenders hike mortgage rates

Lenders are now increasing mortgage rates across the board, with the typical two-year fixed rate standing at 6.79%, a typical five-year now at 6.31% as of 20 July according to Moneyfacts. 

Figures compiled by the IFS think-tank estimates that as a result of soaring mortgage rates 1.4million Brits face losing at least a fifth of their disposable income. 

Across the UK households are set to pay nearly £280 more each month, rising to nearly £360 for 30 to 39-year-olds. 

But the hit will be 'substantially larger' for some households, costing them 20% or more of their disposable income.

Lenders are also limiting the number of first-time buyer mortgages: Mortgages requiring a 5% deposit numbered 239 on 23 May (the day before the worse-than-expected inflation announcement) - it is now 215 (as of 20 July).

The choice of buy-to-let mortgages has also fluctuated and dropped by 12% over the same period: from 2,748 deals to 2,393– that’s a reduction of 355 deals.  

Homeowners struggling with soaring mortgage rates will get more flexibility with their payments after bank bosses met the chancellor, Jeremy Hunt, in Downing Street and agreed to a series of support measures.

Support includes a temporary switch to interest-only mortgage and extensions to mortgage terms to bring monthly payments down.

Should I overpay my mortgage?

Rising mortgage rates can get homeowners thinking about overpaying their mortgage as a way to protect themselves.

Our mortgage overpayment calculator reveals how your monthly repayments may change and help you decide if it is worth it. 

Rachel Springall, finance expert at Moneyfacts, said: “Product choice has fallen, and as may be expected, average fixed mortgage rates are on the rise. This volatility is down to the concerns surrounding future interest rate hikes, and lenders are reassessing their propositions.

She adds: “It is vital that borrowers seek advice to assess the situation and to find a mortgage that suits their circumstances.”

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London households face an annual bill rise by up to £7,300 when they remortgage this year, a think tank has warned.

Around 3.5 million households are yet to face the impact of rising mortgage rates as they are still on cheap fixed deals and nationally will have to spend an extra £9bn in interest over 2023 and 2024, according to the Centre for Economics and Business Research.

The research shows the average borrower will see their monthly mortgage bill jump by £325 while annual interest payments will rise by an average of £3,900 a year.

Those remortgaging in 2024 will pay an extra £3,200 a year in interest.

Households in the most expensive part of the UK will see the biggest increases. A London homeowner coming to the end of a fixed rate deal this year will pay an extra £608 a month when they remortgage while those doing the same in the South East will pay an extra £450 a month.

It comes after 12 consecutive rises to the Bank of England’s base rate since December 2021. Last month the central bank raised interest rates to 4.5%, the highest level in 15 years.

The Resolution Foundation has previously predicted that the scale of the living standards shock will be particularly high for those low and middle-income households who are affected.

Younger home-owning families, who tend to have lower incomes than older households and higher mortgages relative to incomes, will also face a sharp living standards hit, the foundation said.

Simon Pittaway, senior economist at the Resolution Foundation, said: “While interest rate rises might be coming to an end, there will be plenty more mortgage pain to come.”

Meanwhile, Labour said homeowners are being hit with a “Tory mortgage penalty” of £7,000 per year, with interest rates triple what they were two years ago.

Pat McFadden, shadow chief secretary to the Treasury, blamed what he called the “reckless economic gamble” taken by the Conservatives during September’s mini-Budget.

Liz Truss became the shortest serving prime minister in modern British political history after the fallout from her and then-chancellor Kwasi Kwarteng’s so-called Growth Plan that sent the value of the pound tumbling and mortgage rates soaring.

Analysis by Labour suggests the average homeowner is forking out an extra £150 every week since what officials called the “kamikaze mini-Budget” in the autumn.

Where to get help if you’re struggling with mortgage payments

A spokesperson for trade association UK Finance said: “Lenders stand ready to help anyone who might be concerned about their mortgage payments. If you’re struggling, don’t put it off – speak to your lender as early as possible.

“Banks have a range of tailored options available to help. Your lender will work with you to find the best option for your individual circumstances.”

Under guidance from the Financial Conduct Authority (FCA), the lending industry must consider a range of support options, including:

• part-payment plans
• mortgage term extensions
• temporarily transferring to an interest-only mortgage
• deferring interest due

Additional reporting from PA

Skipton Building Society has launched a new style of deposit-free mortgage that will enable first-time buyers to get on the property ladder by providing evidence that they have made their rental payments on time over a 12-month period.

Applicants need to be over the age of 21 and have a good credit history when applying for Skipton’s Track Record mortgage - but do not need a guarantor.

This contrasts with a number of other no-deposit mortgage deals offered by other lenders that require the financial backing of family.

“Skipton’s Track Record mortgage is attempting to serve a part of the market that has recently been wholly reliant on help from the Bank of Mum and Dad,” explains David Hollingworth, associate director for communications at the mortgage broker L&C Mortgages.

“This deal recognises the fact that hard-pressed first-time buyers that have met their rent and household bills over a sustained period of time should demonstrate their ability to meet a mortgage payment lower than their rent, irrespective of the existence of a deposit.”

But at 5.49% for five years the interest rate for Skipton’s loan is more expensive than the average five-year fix of 5%.

Nor will the loan solve all the difficulties for all first-time buyers, says Hollingworth. “There will be affordability limitations on the borrowing amount which may still not meet the required purchase price.”

The average house price is currently £286,896, according to the latest Halifax data. It means that a first-time buyer would need around £14,000 for a 5% deposit - the minimum when taking out a mortgage. Yet more than a third of renters are struggling to save due to rising rents, according to research by Skipton.

We explain how Skipton’s new deposit-free mortgage would work, and the “100% mortgages” already on offer from other lenders.

Skipton’s deposit-free mortgage

Skipton’s Track Record mortgage allows borrowers to bypass standard deposit requirements by using their rental payment history.

The maximum amount that renters can borrow will depend on their credit score, evidence of making their rent on time for the last 12 months and their income, with an absolute maximum of £600,000.

Those wanting to see how much they can borrow can use Skipton's Track Record Calculator.

Skipton will also ensure that the monthly mortgage payment is not more than the average of their last six months' rental costs.

For example, a tenant paying an average of £750 per month over the last six months will have a maximum monthly mortgage payment of £750.

Charlotte Harrison, boss of home financing at Skipton, said: "We need to tackle the UK's housing affordability crisis to enable more people, especially renters who are trapped in renting cycles, to buy their first home.”

Andrew Montlake, MD of Coreco mortgage brokers says: “The Skipton product is different to those of yester-year, as it is linked to the rent currently being paid and the mortgage payment cannot be more than the average of the borrower's last six months rent. It will also need to meet Skipton’s standard income multiples.

He adds: “This new product will not be suitable for everyone, but it will help some of the new generation of home buyers get off the rental treadmill and enjoy the security of owning their own home.”

How do 100% mortgages work?

Similar home loans called 100% mortgages are already available from certain lenders - but all require some type of guarantee from family members.

These are essentially family-assisted mortgages that lend as much as 100% of the property’s purchase price that require additional security from a guarantor, often parents.

This additional security can involve cash locked away in a savings account for a set period of time or equity in the parental home.

The “temporary deposit” gives the lender added reassurance in the event that the buyer can’t keep up repayments or if the lender ultimately has to repossess and sell for less than the outstanding mortgage.

After a set period of time, the cash or equity in the parental home is returned.

For example, Barclays’ family springboard mortgage lets relatives or friends put 10% of the first-time buyer’s purchase price in a savings account for five years to act as a temporary deposit. They get it back with interest after the five years. The bank currently offers a five-year fixed-rate mortgage at 5.89%.

Meanwhile, Loughborough Building Society allows family members to put a cash lump sum into a designated account or agree to accept a legal charge over their own home, or a mix of the two, via its Family Deposit Mortgage. The building society has a two-year fixed-rate loan at 5.55%.

Which lenders offer 100% mortgages?

The few lenders that offer 100% mortgages include high street names and lesser-known building societies:

• Barclays Family Springboard
• Lloyds Lend a Hand
• Halifax Family Boost Mortgage
• Loughborough Building Society Family Deposit Mortgage
• Beverley Building Society Property Assist
• Buckinghamshire Building Society Family Assist
• Vernon Building Society Head Start Mortgage
• Mansfield Building Society Family Assist
• Tipton & Coseley Building Society Family Assisted Mortgage