Homebuyers may see little improvement in affordability despite lower borrowing costs
A gradual fall in mortgage rates this year could support small increases in house prices in 2026, without significantly changing current affordability conditions for typical first-time buyers or existing owners moving home, new analysis from Moneyfacts has indicated.
For first-time buyers, the data show that those entering the market last year typically borrowed about £236,000 against an average purchase price of roughly £310,000. That equates to an average loan-to-value (LTV) ratio of 78%, with buyers putting down deposits of around 22%.
Homemovers were, on average, taking on larger loans in cash terms but with far lower leverage. Typical borrowers in this group took out around £251,000 in 2025 to buy properties valued at approximately £466,000, implying an average LTV of 58% and equity stakes of about 42%.
Remortgage customers tended to have even more equity in their homes. The typical remortgage loan was about £215,000, secured on properties worth in the region of £460,000. This translated to an average LTV of 50%, with borrowers holding around half of the property value as equity.
Moneyfacts’ analysis is set against market expectations that the Bank of England will reduce Bank Rate from its current level of 3.75% to somewhere between 3.25% and 3.5% over the course of this year.
“After more than three years of higher borrowing costs, even small cuts in mortgage rates can have a meaningful effect on buyer behaviour,” said Adam French (pictured right), head of news at Moneyfactscompare.co.uk. “With markets expecting at least one further 0.25 percentage point cut to the Base Rate, the mortgage landscape in 2026 may be more forgiving than at any point since 2021.
According to French, easing mortgage rates may make modest house price growth possible without stretching affordability further, an important shift after the intense affordability squeeze of the past three years.
“First-time buyers still face the steepest challenges, with many stretching to higher LTV deals given the need to save a considerable deposit,” he noted. “In contrast, remortgage borrowers - who typically hold far more equity and are unlikely to need to borrow more - stand to benefit most from easing rates.
“Any expectation of more substantial growth should be tempered by the fact that borrowing costs remain well above the ultra-low levels of the 2010s. Even with rate cuts, affordability remains tight.
“Lower rates remove a headwind rather than create a tailwind, making modest house price growth possible, but not guaranteeing it. Unless rates fall further or incomes rise faster than expected the headroom for growth is likely to remain tight.”
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