Budget statements are always about the finer details and this week’s offering from Chancellor Rachel Reeves was true to form.
The headline takeaways were gloomy. Overnight analysis from think tank the Resolution Foundation showed welfare cuts will hit the UK’s poorest households.
On the back of anaemic growth in 2023 and 2024, the OBR’s halving of its growth forecast for 2025 leaves Britain on track for its third consecutive year with less than a 1% growth in per capita GDP – something that hasn’t happened in over 30 years.
Clearly, this year the economy is in for a bumpy ride.
But that’s this year – and it’s not all bad.
What does low economic growth mean for the housing market?
There are two levers when it comes to growing the economy – tax and monetary policy.
The Treasury is going hard and fast on tax rises, which will depress growth.
But makes it more likely that that the Bank of England will err on the side of caution when it comes to interest rates.
Consumer prices inflation was 2.8 per cent in February 2025, down from 3% in the month before.
At its March meeting, the Bank of England said based on its current outlook “a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate.”
Expect interest rates to come down further this year, in other words.
Will planning reforms deliver growth?
According to the Office for Budget Responsibility (OBR), the housing market is set to see a significant rise in investment this year and next.
This means as new homes are completed and money flows into smaller and medium sized developers’ hands to boost retrofit and refurbishment, housing transactions are set to pick up dramatically.
The usual warnings that capacity in the construction industry is just not there to physically build more homes were also alleviated this week as Reeves pledged to invest
£625m in skills in construction over the next four years, expected to provide up to 60,000 more skilled workers.
The OBR now expects housing transactions to rise from around 290,000 a quarter at the end of 2024 to around 370,000 a quarter by 2029 – around 3,000 more transactions a month.
This isn’t going to happen overnight, but combined with lower mortgage rates it does paint a sunnier picture for business volumes in the near future.
Affordability is turning a corner
A number of moves in March mean homebuyers and homeowners may see improvement in affordability.
The OBR’s forecasts now suggest that a 0.5% increase in the housing stock as a result of the planning reforms will bring down the average house price by around 0.8% in 2029.
Lower prices make it easier for first-time buyers to get on the ladder – even if the predicted drop is marginal.
These are national averages. What matters is where new housing development is focused, that there are jobs there and mortgage finance is available.
There’s hope on this side too. The Financial Conduct Authority (FCA) wrote to the Treasury earlier this month promising to make it easier for lenders to lend to more borrowers.
This isn’t to say lending standards will become lax – only that lenders will have more leeway under the regulation to make responsible judgements.
In May, the FCA will begin a consultation on making it easier for consumers to remortgage with a new lender, reduce their overall cost of borrowing through term reductions and discuss their options with a firm outside a regulated advice process.
Then in June they will launch a public discussion on, among other things, risk appetite and “responsible risk-taking”, alternative affordability testing and product innovation, lending into later life and consumer information needs.
The Bank of England has already proposed a review of the current loan-to-income flow limit, which restricts how much of a bank’s overall lending can exceed 4.5 times the applicant’s income.
What does all this mean for brokers?
It’s never a good idea to suggest anything is an absolute given, but there is definitely hope that the housing market is going to be one of the winners economically over the next few years.
More activity means more opportunity for brokers who, after a tough few years of helping clients navigate higher mortgage rates and the looming stamp duty cliff edge next week, deserve some long-awaited good news.
Emma Hollingworth is chief distribution officer at LSL Group financial services
