We recently heard that the Financial Conduct Authority (FCA) is preparing to consult on significant reforms in the mortgage market. Not only would these changes stimulate enough demand to increase house prices by up to 4% by 2026. These proposed changes aim to simplify existing mortgage rules, allowing for more flexible products tailored to various working patterns and income levels throughout different life stages.
The FCA, acting as the City watchdog, has noted that some lenders’ current stress testing practices might “unduly restrict access to otherwise affordable mortgages.” Currently, lenders limit all borrowing to no more than 4.5 times a borrower’s income. This restriction can prevent first-time homebuyers from getting the money they require.
The future of the mortgage industry is upon us. Home-movers going into 2026 would be experiencing a much lower average effective mortgage rate than we have this year. Recent trends indicate that many lenders have already reduced the interest rates employed in their stress tests, paving the way for increased affordability in the housing market.
Our UK housing market is going through an unprecedented change. In the 12 months to September, first-time buyers borrowed on average £210,800 – another record high. The typical house in the UK cost £272,998 last month. Regional inequities are still a sore spot, too. In fact, the average home price in the north of England is now almost 58% of what it is down south.
Robert Gardner, chief economist at Nationwide Building Society, expects a slight pick-up in housing market activity. He states, “We expect housing market activity to strengthen a little further as affordability improves gradually via income growth outpacing house price growth and a further modest decline in interest rates.”
Here, Matt Smith, a mortgage expert at property portal Rightmove, explains how the dynamics of affordability are shifting. He emphasizes that individuals experiencing slight decreases in local house prices coupled with recent pay raises will find their financial circumstances improving. “Those who are seeing slightly lower house prices in their area compared to last year and may have had an end-of-year pay rise will see their affordability improved further,” Smith notes.
House price forecasts continue to be bullish, with predictions of appreciation in the 2% to 4% range in the coming year. Now, potential buyers are finding it easier to get mortgages. This could be a sign that the housing market is starting to improve.