May’s base rate cut to 4.25% was welcome news for the housing market and there is hope that more will follow as the Bank of England looks to stimulate the economy and drive growth. However, once again, the Bank of England Monetary Policy Committee has warned that it will continue with a cautious approach to further cuts.
Three more base rate cuts are expected in 2025. But are cuts in the interest rate enough to tempt more first-time buyers into the market, or are there other things to consider?
First-time buyers have struggled for some time to find their feet in what has been a pressurised market after mortgage rates increased following interest rates soaring in 2022 and 2023. The first two base rate cuts in 2024 saw mortgage rates fall and the anticipation that they could finally realise their housebuying dreams, except further mortgage rate cuts have taken longer than expected.
But confidence is building and first-time buyers are eager to buy. Ahead of the first cut of 2025, announced in February, the Building Societies Association published a survey that showed that a third (33%) of first-time buyers believed 2025 was a good time to buy a property, almost double the number who thought the same a year before.
It also showed that the stamp duty increase, which came into force in April, was doing little to put first-time buyers off, with only 16% of first-time buyers seeing such costs as an obstacle, compared to 22% of general buyers.
The cost of mortgages
But first-time buyers are still worried about mortgage rates with nearly two-thirds (65%) worried about monthly mortgage repayment costs according to the BSA April 2025 Property Tracker.
Ahead of the announcement lenders, had already started cutting rates as swap rates fell in advance of the base rate cut news. Nationwide, for example, revealed that it would offer sub-4% rates for first-time buyers for the first time since September 2024.
As further interest cuts take place during the rest of 2025, many in the market are predicting mortgage rates dropping to 3.5% by the end of the year.
The challenge of deposits
The cut in interest rates will be welcomed since any downward pressure on both the base rate and on mortgage rates helps to improve general affordability for first-time buyers. However, the big challenge for many remains saving enough for a deposit to enable them to secure a mortgage in the first place. In the BSA April 2025 Property Tracker raising a deposit was cited by 62% of would-be homebuyers as a barrier to home ownership, up from 52% in January.
Changes to affordability rules
First-time buyers will be hoping this will change. At the end of April several lenders slashed affordability rules with the changes allowing buyers, including those new to the market, to borrow more. The changes followed reductions in the stress test rates, which are used to check whether buyers would still be able to afford the mortgage loan if interest rates increased.
HSBC said that its stress rate reduction would mean that 20,000 more people could get on the property ladder as a result, with the ability to borrow an average of £39,000 more than before. It’s moves like this, in addition to base rate cuts, that are likely to be the true stimulus that first-time buyers need to get on the property ladder.
For more information on how we can assist you on your sales journey, please contact one of our branches in Essex, London or Hertfordshire today. We also offer a free and instant online valuation to give you an idea of how much your home could be worth on the current market.
