The Spring Statement wasn’t expected to be a gamechanger for our industry, and consequently, the needle hasn’t moved forward much when it comes to support for aspiring homebuyers. Although some economic factors remain beyond the Chancellor’s control, it’s clear the last thing Rachel Reeves wanted to do was rock the boat.
Nevertheless – and I have to say with one huge caveat, tariffs impact aside - there are reasons for us to encourage our customers to remain positive following the statement. Reeves reminded us that the Bank of England had cut interest rates three times since the government was elected. Furthermore, by 2027, inflation is projected to fall to 2% - although the OBR expects it to average 3.2% this year. We don’t yet know if tariffs will go so far that inflation again becomes the more dominant worry, or if (as many are forecasting now) the knock-on potential of tariffs is potentially so large that we’re now more likely to see a greater number of rate cuts than was predicted even a fortnight ago.
While economic recovery still won’t happen overnight, stability was very much the order of the day in the statement. This slow and steady approach should give further comfort that there should be no nasty surprises around the corner. Indeed, borrowers are slowly getting used to the fact that mortgage rates are unlikely to fall much further, and that current rates are broadly where new pricing is. If they reduce further and more quickly as a consequence of tariffs and economic growth slowing, this will only be more helpful, so long as a good degree of consumer confidence remains.
What does this mean for our industry?
With planning reforms promising to enable housebuilding to reach a 40-year high, with a target of building 305,000 homes a year by 2029 (up from 269,500 homes in 2022/23), that amounts to 1.3m homes in the UK over the next five years. Reeves stated that this will take the government “within touching distance” of its pledge to build 1.5m homes in England over the next five years.
In order to meet these targets, Reeves has also promised a £600m package to train up to 60,000 new construction workers, coupled with a £2bn investment in social and affordable housing. While the government’s reinforcement of its commitment is welcomed, many aspiring buyers will continue to be priced out of the market through tough lending criteria and affordability challenges. With this in mind, more concrete evidence is required as to how these targets will be delivered before we get too comfortable.
Tackling the affordability crisis
We need more targeted action in the form of incentives and assistance to support aspiring first-time buyers - and this needs to be implemented from the top down. There are four key areas where improvements can be made, all of which would elevate the first-time buyer market without having to dig into taxpayers’ pockets.
While the proposal by the Financial Conduct Authority (FCA) to review the relaxation of mortgage lending rules is a step in the right direction, more noise needs to be generated to have a better chance of implementing meaningful change. It’s an undeniable fact that too many renters remain trapped paying their landlord’s mortgage and are unable to access the property ladder themselves due to strict affordability criteria. This prevents the housing market from functioning as it should and, consequently, restricts economic growth.
Reviewing current lending rules
Relaxing the loan to income cap (LTI cap) from 15% to 20% would allow lenders to lend more freely - but not by too much. This would be hugely beneficial to those trying to purchase their first property who are currently battling with high rental payments and living costs. This would provide a welcome boost to their borrowing power and help to bridge that all-important affordability gap. Although relaxing mortgage lending rules would require careful execution, higher LTI mortgages could help many more renters to become first-time buyers.
Similarly, capital adequacy rules on high LTV mortgages could also be reassessed to help make it less expensive for lenders to lend at high LTVs, giving those with a smaller deposit a much-needed helping hand. While I understand why these rules are in place, the fact remains that high LTV lending worked very well over many decades past, and for a long period of time, this was classed as ‘normal’ lending. Moreover, so long as these borrowers had been underwritten properly in the first place, arrears and repossession levels on historically high LTV mortgages have been very low.
It’s great that affordability stress testing appears to be under review, as it makes little sense assessing a borrower’s income at standard variable rate (+) when the short-term fixed pay rate can be almost half that level. In its current format, someone buying a property worth £400,000 with a 10% deposit would be tested on the ability to pay up to £3,000 a month - way above even the highest pay rate. Relaxing the rule further to a pay rate of, say, +2% or similar is a much more sensible and realistic scenario. Half of aspiring first-time buyers could afford mortgage payments, but not when stressed at these levels, so something needs to change. I do, however, acknowledge that we live in strange times at the moment, so a good degree of caution is still needed.
Factoring rental income into affordability testing
Currently, it’s hard to fathom that lenders still do not take rental income as proof of affordability. As an aspiring buyer, if I’ve paid £1,500 rent for 36 months and not missed a payment, why then stress test at SVR +1%, which prevents me from buying? For too long now, renters have been hamstrung by rising rental payments, making saving for a deposit extremely difficult - particularly coupled with recent levels of higher inflation.
Lenders should be able to make more positive underwriting decisions based upon a tenant’s reliability or otherwise to maintain their rental payments. While there are a select number of lenders that have made progress in this space, developing innovative products and solutions that make homeownership more accessible, it’s imperative that we see more common sense and freedom in this area. Unfortunately, the cost of these changes has stopped millions of aspiring first-time buyers from getting onto the property ladder, leaving them reluctantly renting for far longer than they should be.
Exploring all available options
In the context of rising rents, house prices, and the cost-of-living, demand for more affordable housing has never been greater - especially in a post-Help to Buy world. However, while the statement revealed that the government is actively investing in the creation of new, more affordable homes, there’s cause for concern that this support only goes so far, supporting customers that meet a specific set of criteria.
To get more people into properties that they can afford, we also need to look at casting the net wider. Otherwise, support is only being provided to those who meet specific low affordability criteria. There are a wealth of products, schemes, and incentives to support customers, whatever their circumstances. We need to put collective options on the table for our customers and open their eyes to opportunity, pushing the boat out to liaise with lenders we may not be as familiar with, rather than simply sticking with what we know.
The need for further stamp duty reform
First-time buyers are the lifeblood of the market and enable existing homeowners to move up - and down - the ladder. However, the latest batch of stamp duty changes have done nothing to aid movement. There has been a significant increase in young adults aged 20-34 living with their parents as they struggle to afford rising prices — up from 13% in 2006 to 18% in 2024. The number of rental homes in England has increased by over a third (36%) from 6.3 million in 1990 to 8.6 million in 2023. Furthermore, affordability is also a growing constraint on rent rises, with the annual cost of UK rents increasing by £3,000 a year to £15,400 on average.
Unless more suitable downsizer homes are built, retired baby boomers could struggle to find a suitable property to move to. Barclays found that about 1.7m households with spare rooms were open to moving homes in the next two years, but with the right incentives and eligibility criteria in place, this could boost this number to 3.8m. Whilst I remain slightly sceptical of its impact, stamp duty relief for downsizers could be targeted at individuals over a certain age who are selling a property, and buying a lower value property within the same transaction.
At MAB, we’ve long campaigned that those who buy or retrofit their homes to a higher EPC rating should be rewarded. This could be achieved through offering a stamp duty refund to those who buy and retrofit a property to an EPC rating of C or above. Not only would this make these homes instantly look more attractive to buyers, it would help to catalyse a greater level of upgrading of UK housing stock and directly contribute to the UK’s 2050 net zero targets.
While the Spring Statement offered us some glimpses of progress in housebuilding and a greater degree of economic stability, it fell short of providing the targeted, actionable support desperately needed by aspiring first-time buyers. The focus on long-term housing targets and infrastructure investment, while commendable, must be accompanied by immediate, practical measures that address the affordability crisis.
Ultimately, the government must move beyond broad promises and continue to encourage a framework that can deliver concrete, strategic interventions to empower aspiring buyers and home movers, revitalising our housing market, and, of course, our flagging domestic economy - even more poignant now we find ourselves in the throes of global economic uncertainty.
