The return of the tracker?
Lenders across the mortgage market are consistently reviewing and refining their residential propositions to better support borrowers, particularly at higher LTV bands, to ensure homeownership remains accessible and affordable. This has been especially apparent during the opening weeks of 2025. However, in a recent internal review of these higher LTV bands, we did identify a gap for products linked to the Bank of England Base Rate.
With potential base rate reductions on the horizon, we believe tracker mortgages can provide an attractive option for those borrowers looking for a little more flexibility when it come to their own personal and financial circumstances in the current economic climate. And this is a product type which is generating increased levels of engagement with our intermediary partners and their clients.
Inevitably, affordability concerns lie at the heart of these conversations and, encouragingly, we are seeing some signs of improvements. Market analysis from Stonebridge recently revealed that affordability improved for the second consecutive month in November 2024. Its latest data showing that monthly repayments accounted for 36.3% of the average borrower’s salary, down from 40% in September and 38.7% in October. Making this the most affordable recorded month since repayments accounted for 34% of earnings in November 2022.
Beyond these affordability improvements, there are ongoing discussions within the industry and beyond on how best to support those credit-worthy borrowers with lesser deposits. A recent story emerged in The Times suggesting that financial regulators are looking at allowing lenders greater flexibility to allow “responsible risk-taking” from borrowers. It outlined that among the proposed changes in discussion are reforms to loan-to-income caps and financial stress-testing rules that limit how much first-time buyers can borrow. In addition, the article in question stated that the government and lenders could look at amending affordability tests to include evidence of previous rental payments rather than simply income.
As ever, the government, regulators, and lenders must carefully balance their approach. That said, it’s positive to see discussions taking place and avenues being explored to make homeownership more attainable for those with a strong track record of responsible financial behaviour. However, great care and attention must be given before implementing any changes, the last thing we want as an industry is to revisit some of the darker days of the past.
Strong Start to 2025 in Market Activity
Other positive signs have emerged in the first few weeks if the years as the number of mortgage applications has been noted as being ‘strong’, aligned with a noticeable uptick in buyer demand.
January data from Zoopla shows that buyer demand is tracking 14% ahead of early 2024 levels, with new sales agreed up by 15% compared to the same period last year. Further supporting these relatively upbeat market conditions, Zoopla reported a 125% increase in vendor sales leads in the first week of January compared to Christmas Eve, along with a 30% higher likelihood of valuation leads converting into sales. Additionally, sessions on the platform were up by 113% for the same period, reflecting heightened consumer engagement. Listings per branch have also risen by 12% compared to early 2024, further reinforcing the progressive trajectory of the market.
Looking Ahead
With affordability levels improving, lenders and government bodies exploring new high LTV solutions, and strong early-year activity levels, the mortgage market appears well positioned for a promising 2025. The continued commitment of lenders, brokers, and policymakers to enhancing accessibility and affordability will be key to sustaining this momentum and ensuring more people across the UK can take their first, or next, step onto the property ladder.
