Cheaper mortgages and relaxed lending rules push up price of a first home

Cheaper mortgages and the ability to borrow more are set to push prices of first-time buyer homes even higher, after they already spiked at the start of 2025.

Reduced stamp duty until April and falling mortgage rates increased the price of first homes during the early part of this year, according to analysis of Land Registry data by lender MPowered Mortgages.

Between January and March this year, the average price paid by a first-time buyer spiked by £4,772, a 2.1 per cent increase in just two months.

This means prices grew 2.5 times faster for first-time buyers than for those further up the ladder, for whom prices rose by just 0.8 per cent.

The stamp duty changes came into effect on 1 April. While home movers could only save up to £2,500 if they completed by 31 March, first-time buyers could save as much as £11,250 depending on the price of the property they were buying.

And between the start of February and the end of March, average two-year fixed mortgage rates fell from 5.52 per cent to 5.32 per cent, according to Moneyfacts.

This led to a big rise in activity among first-time buyers.

Fresh Bank of England data shows that 31.4 per cent of the £77.6bn in new mortgage lending completed in the first three months of 2025 was to those taking their first step on the ladder.

This was the highest share on record and up 5.6 per cent compared to the same period in 2024.

The analysis by MPowered found prices for first-time buyers have risen most in northern England.

The average first-time buyer in Yorkshire and the Humber paid £9,467 more for their home in March than in January, a 5.4 per cent rise.

Meanwhile first-time buyer prices spiked £9,151 in the North East - a 6.6 per cent increase in just two months.

The average price paid for a first home in the North East has risen by 15.1 per cent in a year and an incredible 40 per cent in five years.

The average price paid for a first home in East Anglia rose by £8,148, a 2.9 per cent jump and well above the £5,777 increase in prices paid by buyers who already own a home.

At the other end of the spectrum, prices fell across the board in London.

However, while the average price paid in the capital by those who already own a home fell by £19,048, first-time buyers paid just £4,742 less on average.

This is set to continue as falling mortgage rates, combined with changes to stress testing, have boosted buyers' purchasing power. The impact of this is already showing up in the data.

More people registered to buy in May 2025 than in any May since 2021, according to data from the estate agent Hamptons.

It revealed the biggest uplift in buyer registrations came from first-time buyers - up 4 per cent year-on-year.

'The post-stamp duty holiday lull has proven to be short-lived, with year-on-year changes in buyer demand returning to positive territory in May,' said Aneisha Beveridge, head of research at Hamptons.

'Falling mortgage rates have significantly boosted buyers' purchasing power, in most cases offsetting the increase in stamp duty bills they now face.

'First-time buyers have been the most significant beneficiaries, with high loan-to-value mortgage rates seeing the most substantial falls, alongside more favourable affordability assessments from lenders.'

Since March, multiple high street lenders have loosened their mortgage rules, allowing people to borrow more when buying a home.

The relaxation of mortgage stress tests is believed to be playing a pivotal role in boosting first-time buyer numbers with some finding they are able to borrow up to 20 per cent more than they could only a few months ago.

Mortgage lenders 'stress test' fixed-rate mortgage borrowers, checking they would still be able to afford their repayments if their rate went up when their fixed deal ended.

Until the recent changes, someone taking a two-year fixed mortgage charging 4.5 per cent interest might be stress tested on their ability to pay 7.5 per cent.

On a five-year fixed rate, this might be 6.5 per cent - though few banks make their 'stress rates' public.

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Banks are allowing borrowers to stretch their finances further now because the regulatory environment has shifted.

Recent guidance from the Financial Conduct Authority encouraged lenders not to unduly restrict access to mortgages that are affordable, especially as interest rates begin to stabilise.

Peter Stimson, director of mortgages at MPowered, said: 'Buyers are routinely being offered loans up to 20 per cent larger than they were a year ago.

'For first-time buyers, who typically borrow close to the maximum they can, the ability to borrow more, and pay more, for a home is pushing up prices sharply.

'Lower stress tests are replacing stamp duty as the fuel for a first-time buyer boom.'

Recent analysis by Savills also suggested that the easing of mortgage stress testing rules could cause house prices and first-time buyer numbers to rise.

It says that more relaxed mortgage stress tests could see the number of first-time buyers purchasing a home rise by 24 per cent, or more than 80,000, over the next five years.

Its analysis suggests more relaxed mortgage rules could boost first-time buyer transactions by between 14 per cent and 24 per cent.

Easing mortgage stress tests could also cause property prices to rise by between 5 per cent to 7.5 per cent in five years, Savills added.