Average house price could rise by £19k due to new mortgage rule | Personal Finance | Finance

Relaxed mortgage rules could drive house prices significantly higher than expected over the next five years, adding as much as £19,425 to the average UK home, according to analysis by estate agent Savills.

The uplift, equivalent to a 7.5% increase, would come on top of a projected 23.4% rise in house prices by 2029, fuelled by falling interest rates and continued demand from buyers, the Telegraph reports. Savills estimates the average house price could jump from £260,000 today to nearly £320,000 by the end of the decade. The key driver is a change in how banks assess mortgage applications. Lenders have eased stress testing rules, allowing many buyers to borrow up to £40,000 more than before.

This shift followed the Bank of England’s updated guidance in March, which encouraged more flexibility in affordability checks.

Lucian Cook, head of residential research at Savills, said: “The impact on house prices and transactions is likely to take place over a period of five years. But in the medium to long term, the market would feel the knock-on effect of a widening pool of buyers.”

The stress tests, introduced after the 2008 crash and tightened again following the 2022 mini-Budget, had required borrowers to prove they could afford repayments even if interest rates rose sharply. Now, lenders can base assessments on expected future rates, which have fallen in line with Bank Rate cuts earlier this year. At least one more rate cut is expected before 2026.

Despite projected house price increases, the changes could reduce average first-time buyer deposits from £58,000 to £45,000, offering some relief after years of rising costs.

The reforms are part of a broader Government push to make homeownership more accessible. Building societies are lobbying for more freedom to lend to lower-income borrowers, and the Financial Conduct Authority (FCA) is reviewing further changes to support remortgaging and shorten ultra-long loan terms.

Housing Minister Matthew Pennycook said: “The affordability challenges facing first-time buyers mean that we now have a generation locked out of homeownership. This Government is determined to change that.”