How to navigate economic uncertainty when planning your mortgage
Moving house can be a stressful process. And when you add economic uncertainty into the melting pot, it’s easy to feel rooted to the spot and unsure of your next step. This month’s article looks at current market uncertainty, how it might affect your house-buying plans, and some of the ways you can stay informed and (relatively) calm!
Fluctuations in the interest rate
At the time of writing this article (May 2025), the Bank of England base rate has risen by 4% in the past 3 years. After reaching a 10-year high of 5.25% in October 2022, it is currently 4.25% following gradual drops from August 2024 onwards.
While it’s impossible to predict base rate trends, the Bank of England believes rates are “on a gradually declining path”1. Looming US trade tariffs make predictions harder as the Bank of England carefully balances its desire to keep inflation low and its need to react to price increases.
What does that mean for your house-buying plans? The Bank of England base rate has a significant influence on mortgage rates. Before 2022, the base rate was at an incredibly low rate for over 10 years (between 0.25 and 0.75%). If you got onto the property ladder between 2010 and 2022, then it’s likely recent rises will have had an impact on your mortgage payments. If you’re coming to the end of a 5-year fixed-rate mortgage, then available rates on new mortgages are likely to be significantly higher than what you’re currently paying.
Stamp duty changes
From April this year, the government made significant changes to stamp duty thresholds:
- First-time buyers used to be exempt from paying stamp duty on houses up to the value of £425,000. Now they will only be exempt up to the value of £300,000.
- For home movers, stamp duty wasn’t payable on the first £250,000 value of a property before April 2025. Now, this threshold has reverted to £125,000.
What does that mean for your house-buying plans? The impact of these changes is that the upfront costs of moving are higher for most house-buyers, meaning you’ll need to have more funds accumulated before moving.
House price growth
House prices rose by 3% in 2024, and are expected to grow into 20252. This is, of course, dependent on interest rates and how much the Bank of England intends to reduce the base rate over the next 9 months. The banks change their rates more often than the base rate is changed which is affected by inflation and confidence in the world economy.
What does that mean for your house-buying plans? As well as property cost, this could affect stamp duty thresholds, required deposits and mortgage payments. This can be particularly hard for first time buyers, taking their first step on the ladder. However, for home movers, there are the obvious benefits of selling your property for a higher price, which can help soften the blow.
Inflation and cost of living
Over the past 5 years, we’ve seen increases in almost all areas of consumer spending. Although 2024 saw some easing of the cost-of-living crisis. It hasn’t dropped back significantly, and although it’s not rising at the same level, it means households are still under pressure to afford food, rent/mortgage, and energy costs. We may also see US trade tariffs exacerbating the cost of living due to supply disruptions and increases in the cost of commodities, which might increase inflation further.
What does that mean for your house-buying plans? Cost-of-living increases have a direct impact on the affordability of your mortgage payments. This is because you have less income remaining after all the other costs to afford your mortgage payment.
How to manage economic uncertainty when you’re buying a house
1. Stay informed about economic changes
While it’s easy to be bamboozled by economic terminology, there are lots of resources available that help you stay informed with consumer friendly terminology and explanations. We’ve summarised some of our favourites below that are both reliable and easy to use:
These are, of course, generic – speaking to a broker who can look at your unique circumstances may be more appropriate.
2. Plan for contingencies
One of the best ways to manage uncertainty when you’re moving home, is to scenario plan. Here are a few “what if….?” scenarios you might like to consider:
- What if inflation affects your monthly outgoings? Take a look at how much you spend monthly on food, clothes, fuel, energy etc and increase that expenditure by 10%. How does that affect the income you have available at the end of the month?
- What if your job is affected by a recession? If you or your partner were made redundant, what would the impact be on your ability to pay your mortgage? I often advise clients to have 3 months’ salary saved as a “rainy day” fund for these circumstances.
- What if house prices increase by 3% again this year? If you’re yet to start your property search, it’s worth calculating the impact of more expensive housing on your stamp-duty fees, your deposit and mortgage payments.
3. Speak to a professional
At times of economic uncertainty, I spend a lot of time discussing its potential impact with clients and helping them consider various scenarios like the ideas I’ve given above.
A mortgage broker isn’t just there to help you find the right mortgage. When you find a good mortgage broker, you should be able to voice your concerns about the stability of the market and whether moving home is the right thing for you right now.
Mortgage brokers live and breathe the financial and housing markets, so we are well placed to give up-to-date information and help discuss any questions and concerns you might have.
How can Downton Mortgages & Financial Services help?
I set up Downton Mortgages & Financial Services to give people confidence in their financial decisions. We do that by making your options clear and easy to understand. There are no silly questions, and we are on hand to help every step of the way from research through to application.
For more information about our services look at our website here or alternatively, get in touch for a no-obligation chat about your circumstances and house-buying plans.
Sources
1 BBC News article – Interest rates will go down gradually, says Bank
2 Which? – What’s happening to house prices (Apr 2025 article)
Other blogs we’ve written on related topics
The ten little mortgage tips that could make a big difference
Important Information
The information contained within was correct at the time of publication but is subject to change (May 2025).
Please note for all mortgage products, terms and conditions apply. This information is a summary only. You will receive full documentation upon application which sets out the terms, conditions, and limitations of lending provided.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.