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UK Property Finance

House Prices to Rise in 2025 as Buyers Could Get Bigger Mortgages

by | Oct 28, 2024 | Mortgages | 0 comments

One mortgage provider predicts that house prices might climb dramatically next year since declining interest rates will increase buyers’ borrowing capacity.

Based on latest data from the Office for National Statistics, MPowered Mortgages projects a significant reversal in house prices, which climbed by a meagre 2.8% in the year to August.

The mix of reduced loan rates and greater rents would also help landlords, hence setting their earnings to rise.

Though forecasts differ, markets are currently predicting that the Bank of England will reduce the base rate to 3.5% by the end of next year.

While Santander offered a more cautious 3.75 per percent projection, the investment bank Goldman Sachs indicated this week that it expects the base rate to be dropped to 2.75 per percent by the end of next year.

Experts at MPowered Mortgages believe some mortgage borrowers may be able to borrow up to 18% more if the base rate drops as low as 3.5% next year, as some analysts project.

This is so because consistent base rate reductions should cause mortgage lenders to loosen the “stress testing” affordability requirements they impose on their clients.

Most lenders examine borrowers’ financial situation and determine if, should the interest rate rise once their original fixed rate arrangement expired, they could still afford their payments.

Usually, the lender’s standard variable rate (SVR) plus a set percentage forms the basis of the computation. Right now, it indicates some lenders are trying to find out if consumers could afford a mortgage rate of about 8.5 percent.

This implies that the borrower should be able to afford the higher monthly payments should they do nothing and slide onto the lender’s SVR after the initial fixed period.

Though it is at each lender’s discretion, Lender Standard Variable Rates typically drop when the Bank of England lowers the base rate.

Head of product at MPowered Mortgages Peter Stimson said this will allow first-time buyers and house changers to find themselves able to borrow more.

Subject to affordability tests, some customers who can now borrow up to £200,000 could see that rise to £236,000 next year.

Stimson claimed that this may be a shot in the arm for house prices.

Stimson said the following:

Stimson Statement

Though this could still significantly affect borrowing power compared to today’s 8.5% or more, the minimal lenders rate tend to stress test is around 7%.

Already, house prices are rising.

House price increases are clearly starting to quicken already.

Reflecting mortgages lent in September, Nationwide’s most recent house price index indicates that house prices have grown at the quickest rate for two years.

Rising salaries, lower mortgage stress testing and lower rates could see prices drop in 2025, argues Stimson.

Stimson Statement 2

Buy-to- let comeback on the cards?

Stimson is not alone in believing property prices will probably climb.

Co-host of The Property Podcast and co-founder of Property Hub Rob Dix also believes a house price surge is likely next year.

Thanks to rising rents, he claims property is beginning to look like an appealing investment once more.

HomeLet claims that average rentals have increased 40% since June 2020, following only 4.4% increase between June 2016 and 2020.

Estate company Hamptons claims that the average gross rental return on a recently acquired buy-to- lease in England and Wales has hit 7.2 per percent, a record high.

Last year, the figure was 6.7%; in 2022 it is expected to be 6.2%.

Before tax and other expenses are considered, the gross rental yield—that is, the percentage of return an investor could expect to receive back on the purchase price annually—is what matters.

For a £200,000 home, for instance, a landlord making £10,000 in rent annually would return five percent.

Rising yields have followed from house prices essentially flatlining since 2022 and rental prices soaring since 2020.

Dix had the following to say:

Dix Statement

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