House prices to rise in 2025 as buyers could get bigger mortgages

House prices to rise in 2025 as buyers could get bigger mortgages Home buyers could borrow more due to interest rate cuts, lender predicts By Ed Magnus Updated: 04:45 EDT, 26 October 2024 e-mail 1 View comments House prices could rise significantly next year, according to one mortgage lender, as buyers' borrowing power will get a boost from falling interest rates. MPowered Mortgages is predicting that 2025 could see a major turnaround in house prices, which rose by a modest 2.8 per cent in the year to August according to the most recent figures from the Office for National Statistics.

Landlords would also benefit from the combination of lower interest rates and higher rents, meaning their profits could be set to increase. Markets are currently forecasting that the Bank of England will cut the base rate to 3.5 per cent by the end of next year, although predictions vary.



Boom time? Home buyers may find they can borrow more as base rate falls next year, according to Peter Stimson (inset right), the head of product at MPowered Mortgages This week, the investment bank Goldman Sachs said it expects the base rate to be cut to 2.75 per cent by the end of next year while Santander gave a more reserved 3.75 per cent forecast .

Experts at MPowered Mortgages think that if the base rate falls as low as 3.5 per cent next year - like some analysts are predicting - some mortgage borrowers could find themselves able to borrow up to 18 per cent more. This is because sustained base rate cuts should result in mortgage lenders relaxing the 'stress testing' affordability checks they subject borrowers to.

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. Share this article Share HOW THIS IS MONEY CAN HELP Looking for a new mortgage? Check out the best rates here Most lenders look at borrowers' finances and assess whether they could still afford their payments if the interest rate went up once their initial fixed rate deal ended. The calculation is typically based on the lender's standard variable rate (SVR) plus a certain percentage.

At the moment, it means some lenders are testing that borrowers could afford a mortgage rate of around 8.5 per cent. This means after the initial fixed period, if the borrower does nothing and lapses onto the lender's SVR, they should be able to afford the higher monthly costs.

Less stress: Peter Stimson of MPowered Mortgages says lenders' affordability checks could become more lenient Lender standard variable rates tend to fall when the Bank of England cuts the base rate, though it is at each lenders' discretion. Peter Stimson, head of product at MPowered Mortgages says this will mean home movers and first-time buyers could find themselves able to borrow more. Some people that are currently able to borrow up to £200,000 could see that increase to £236,000 next year, subject to affordability checks.

This, according to Stimson, could be a shot in the arm for house prices. Stimson says: 'Lenders base their affordability not on the rate of interest the borrower will pay on their mortgage, but on a rate on rate of interest they "could" pay in the future. 'They will check the borrower could still afford their monthly repayments, plus all other necessary budgeted expenditure, if mortgage rates were to increase to this amount.

'As base rate drops, so will SVRs and hence the stress rate calculation with it.' He says that the minimum lenders rate tend to stress test is around 7 per cent, though this could still make a substantial difference to borrowing power compared to today's 8.5 per cent or more.

House price growth is already ticking up There are already signs that house price rises are beginning to accelerate. Nationwide's most recent house price index, reflecting mortgages lent in September, shows that house prices have risen at the fastest pace for two years . A property boom would have sounded ridiculous a couple of years ago, but it's seeming increasingly possible Stimson says a combination of rising wages, lower mortgage stress testing and reduced rates could see prices take off in 2025.

'Wages have grown by around 14 per cent in the last two years, according to the ONS, while house prices have seen little change. 'House prices are largely a function of mortgage affordability and what has stopped them growing over the last two years is a combination of high interest rates and lenders' mortgage affordability stress test calculations.' Buy-to-let resurgence on the cards? Stimson is not alone in thinking house prices look likely to rise.

Rob Dix, co-founder of property advice website Property Hub and co-host of The Property Podcast also thinks a house price boom is potentially on the cards next year. Attractive prospect: Rob Dix says 2025 could be a good year for landlords' returns He says property is starting to look like an attractive investment again thanks to rising rents. Average rents have risen 40 per cent since June 2020, according to HomeLet - after only going up by only 4.

4 per cent between June 2016 and 2020. The average gross rental yield on a newly-purchased buy-to-let in England and Wales has reached 7.2 per cent , according to estate agent, Hamptons - a record high.

The figure has surged from 6.7 per cent last year and 6.2 per cent in 2022.

The gross rental yield is the percentage of return an investor can expect to make back on the purchase price each year, before tax and other costs are taken into account. For example, if a landlord made £10,000 in rent per year on a £200,000 property, the yield would be 5 per cent. The rise in yields has come on the back of rental prices spiking since 2020 and house prices effectively flatlining since 2022.

Read More Mortgage Calculator: Check fixed rate costs - and repayment vs interest-only 'A property boom would have sounded ridiculous a couple of years ago,' says Dix, 'But it's seeming increasingly possible.' 'The sector has had everything thrown at it – fast-rising interest rates, new legislation, rumours around tax treatment – and prices are still barely below their 2022 peak. 'Importantly, in inflation-adjusted terms, prices have actually fallen by more than 15 per cent.

'As rents have risen fast, this has improved yields for investors and made investing in many areas more attractive than it has been for a long time.' 'Sentiment among the investors we speak to is also noticeably better than it has been for a long time. 'This could change quickly, and anything that dents the job market could see the situation change – but as things stand, there's potential for significant price increases in 2025.

' How to find a new mortgage Borrowers who need a mortgage because their current fixed rate deal is ending, or they are buying a home, should explore their options as soon as possible. What if I need to remortgage? Borrowers should compare rates, speak to a mortgage broker and be prepared to act. Homeowners can lock in to a new deal six to nine months in advance, often with no obligation to take it.

Most mortgage deals allow fees to be added to the loan and only be charged when it is taken out. This means borrowers can secure a rate without paying expensive arrangement fees. Keep in mind that by doing this and not clearing the fee on completion, interest will be paid on the fee amount over the entire term of the loan, so this may not be the best option for everyone.

What if I am buying a home? Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. Buyers should avoid overstretching and be aware that house prices may fall, as higher mortgage rates limit people's borrowing ability and buying power. How to compare mortgage costs The best way to compare mortgage costs and find the right deal for you is to speak to a broker.

This is Money has a long-standing partnership with fee-free broker L&C, to provide you with fee-free expert mortgage advice. Interested in seeing today’s best mortgage rates? Use This is Money and L&Cs best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs. If you’re ready to find your next mortgage, why not use L&C’s online Mortgage Finder.

It will search 1,000’s of deals from more than 90 different lenders to discover the best deal for you. > Find your best mortgage deal with This is Money and L&C Be aware that rates can change quickly, however, and so if you need a mortgage or want to compare rates, speak to L&C as soon as possible, so they can help you find the right mortgage for you. Mortgage service provided by London & Country Mortgages (L&C), which is authorised and regulated by the Financial Conduct Authority (registered number: 143002).

The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage Share or comment on this article: House prices to rise in 2025 as buyers could get bigger mortgages e-mail Add comment Some links in this article may be affiliate links. If you click on them we may earn a small commission.

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