The second half of 2025 was supposed to be a steady march towards lower mortgage rates.
With the anticipation of Bank of England cutting BBR multiple times, many assumed product pricing would simply follow suit. But the recent picture around the UK’s long-term borrowing costs, the subsequent rise in swaps, and an underlying concern of where this goes next, the picture has been complicated.
Instead of a clear downward glide path, we are facing a more jagged market, with lenders under pressure to balance competitive positioning against higher funding costs.
For first-time buyers, this matters a lot. Affordability has remained tight, even with rates having fallen through 2025 and the extra flexibility on LTI multiples that lenders have been granted. Higher rates do however push the stress-test numbers back into potentially uncomfortable territory, at precisely the point when political debate is encouraging many potential buyers to wait.
The Autumn Budget, now scheduled for 26th November, looms large. Rumours of a significant move on stamp duty, perhaps complete abolition, mean many households have little incentive to transact in September or October. History suggests that in the short-term, activity could therefore soften, only to be followed by an upswing if a major policy change materialises.
But there are two important caveats, which many in the tabloids seem to forget. First, around two-thirds of first-time buyers pay no stamp duty already, so any abolition will only affect a minority. Second, the process from application to completion is now likely to stretch into the new year.
Transactions begun this autumn will potentially populate pipelines for the start of 2026 rather than boosting this year’s completions. For lenders, that means what happens in the next two months is crucial in shaping the year ahead.
The product landscape itself has shifted notably in the past 12 months. The 95% LTV market is far more competitive, with rates often less punitive than in the past. New 99% and even 100% LTV options are back in play, some linked to rental payment histories as evidence of affordability. Add in the increased flexibility on LTI multiples, and the financing toolkit for first-time buyers looks more supportive than it has for some time.
But supply clearly remains an issue, particularly new-build which can tend to be favoured much more by first-timers who want a new property to move into, with little of the potential work that ‘second hand homes’ might require.
For lenders, this may add up to a period of uncertainty. Margins could be squeezed by volatile funding costs. Borrower behaviour is likely to be muted in the short term as everyone waits for the Budget. And the completions of Q4 2025 will mostly appear in early 2026, meaning there is already a forward-looking quality to every decision being made today.
This is where private mortgage insurance has a role. Not as the headline, but as a useful enabler. In a world where lenders want to maintain a visible presence in the high-LTV space but must also manage capital and credit risk carefully, it offers a tool to support balance sheet resilience. It can help lenders write more business at those higher LTV levels without unduly exposing themselves if prices soften or arrears rise.
The point here is not that insurance solves the challenges of affordability, supply or demand. Rather, it provides lenders with a way to continue competing for first-time buyer business through what could be a more tricky end to 2025 and into 2026.
With political and fiscal uncertainty, a potentially stop-start demand pattern, and no guarantee of cheaper funding, the ability to keep serving high LTV borrowers while protecting risk metrics may prove critical. For those with longer memories, lenders and in particular building societies who utilised mortgage insurance were the first to return to high LTV lending post the financial crisis - the so-called ‘Big Six’ banks did not.
Looking ahead, lenders will be judged on two things. First, their ability to remain active in the first-time buyer segment despite short-term volatility. Second, their readiness to capture the demand that could be unleashed if the Budget delivers on stamp duty. Maintaining a strong high LTV proposition is essential to both, and private mortgage insurance offers one way of making that sustainable.
The broader message is clear: the next two months may be quiet but they are already shaping 2026. Lenders that keep faith with first-time buyers, manage their risks sensibly, and position themselves for the release of any pent-up demand, will be best placed when/if the market does turn.
