Regulatory changes in the UK mortgage market and their implications

Mortgages

The UK mortgage market is evolving rapidly due to new regulations, economic shifts and political changes. This article explores recent and upcoming regulatory changes, examining their potential effects on brokers and borrowers based on recent data and news releases.

Recent regulatory changes

Stricter lending standards
The Financial Conduct Authority (FCA) aims to minimise the number of people borrowing beyond their financial means. As a result, the process for obtaining a mortgage will now involve more rigorous checks, detailed paperwork and stringent assessments, making it more challenging for some individuals.

Interest rates and economic impact
The Bank of England’s base rate remained steady at 5.25% from August 2023 until August 2024 when it dropped to 5%, despite ongoing concerns about price rises on everyday items and financial products, such as mortgages. Although inflation has fallen to its lowest level since 2021, mortgage rates have not yet significantly decreased. Brokers must stay informed about interest rate changes to offer accurate advice on mortgage affordability. Borrowers should prepare for potential fluctuations in mortgage costs and consider long-term affordability when choosing a mortgage.

Market trends
Recent data reveals notable trends in the UK mortgage market. The outstanding value of residential mortgage loans decreased by 0.1% to £1,654.9 billion, a 1.4% drop from last year. Gross mortgage advances fell by 2.6% to £51.6 billion, the lowest level since mid-2020, and 12.0% lower than last year. However, new mortgage commitments increased by 30.8% to £60.1 billion, indicating strong demand.

For brokers, this rise in new mortgage commitments suggests a busier period ahead. Borrowers should explore various mortgage products, including green mortgages and shared ownership schemes, as the range of options expands.

Image showing Big Ben with a 2024 General Election sign in front

Labour plans to increase housing and tackle affordability issues.

Upcoming regulatory policies

The recent election of the Labour government could lead to changes in the mortgage market, affecting both borrowers and brokers. Labour’s "Freedom to Buy" scheme aims to assist first-time buyers with deposit support and low-interest loans, making purchasing a home easier. Additionally, the government’s commitment to building 1.5 million new homes seeks to boost housing supply and potentially stabilise or lower house prices. For borrowers, these policies could improve opportunities for homeownership with favourable market conditions.

Mortgage rate stability
Labour’s approach to addressing inflation could lead to lower mortgage rates. Currently, average mortgage rates are stabilising at 5.42% for a two-year fixed and 5.04% for a five-year fixed. If inflation continues to decrease, future rate adjustments might improve affordability. Brokers will have to adapt to government policies, as they may impact mortgage rates and planning. Borrowers should continue to monitor for potential rate reductions to consider securing a mortgage when conditions improve.

Addressing housing affordability
Buying property has been harder than ever due to inflation and unchanging wages. Labour plans to increase housing and tackle these affordability issues. More homes on the market could lead to more affordable pricing and more options for buyers. Borrowers might find this is the right time to plan their home purchase, using potential new government schemes and policies.

To discover what the regulatory changes in the UK mean for you and your mortgage options, speak to our team of advisers today.