The mortgage market resurgence commands equal measures of hope and caution

By now, we’ve all heard the stories: lenders appear to have been taking margin early in the year, playing it somewhat safe, holding back on volume in Q1.

It’s a pattern we’ve seen before but felt like it was being executed with particular caution this year, perhaps taking the lead from the Bank of England, which has also been, in some views, overly cautious.

And while we’re starting to see small sparks of life in the form of rate tweaks and borrower interest, the main event might not be Q2 – rather, it could be what lies just beyond it in Q3.

Let’s not get ahead of ourselves, though. Q2 2025 is shaping up to be more active than the first quarter. Most lenders are still managing high targets, but they’ve been hesitant to fully commit to the pricing skirmishes that normally erupt when competition heats up.

Aside from a recent flurry from Barclays and Santander, which dipped below the 4% mark, other lenders largely held the line. And when they did dip, they didn’t stay low for long.

We’ve been left with a marketplace that’s relatively stable – some might say too stable – with affordability metrics and borrower sentiment waiting for something more significant to change the game.

Still an uncertain economic picture
That catalyst, however, may be appearing. There is now a growing belief that the Bank of England will finally pull the trigger on a Bank Base Rate (BBR) cut in May.

Inflation is easing, the market has largely priced it in, and perhaps most intriguingly, external economic forces – particularly the re-election of President Trump and his new wave of tariffs – are starting to ripple across global markets.

Swap rates fell in response. That drop wasn’t a coincidence; it’s a direct reaction to the economic uncertainty and the potential inflationary shock those tariffs might cause. The Bank of England will be acutely aware of what this means for British businesses, especially exporters and manufacturers. 

There is an argument – increasingly persuasive – that the bank may now have to cut BBR faster and deeper than originally planned in order to help insulate the economy. The thinking goes that if UK businesses are going to be hit by rising import costs and disrupted trade flows, then monetary policy has to step in to cushion the blow.

And the somewhat ancillary good news for mortgage borrowers? That could mean a welcome reduction in mortgage rates, better affordability, and renewed confidence. 

Lots of business to go for
This brings us to what the next few months, and perhaps specifically Q3, might start to look like. If BBR is indeed cut in May – which already feels like a long time to wait for action, but there you go – and swap rates remain suppressed or fall further as we’ve seen in recent days, then we could see lenders move from margin preservation to volume pursuit in a much more aggressive way.

Unlike the tentative movements we’ve seen so far this year, a clear direction of travel on rates could act as a powerful catalyst for demand.

For first-time buyers in particular, who already make up a record proportion of market activity this year – 36.4% of all loans so far – cheaper borrowing costs will only amplify the affordability advantage they already hold over renting. In terms of the recent return to stamp duty thresholds equalling greater costs, the market could certainly do with first-time buyers continuing to be incentivised to act.

Let’s not forget: the average mortgage payment for first-time buyers currently stands at £1,038, nearly 20% lower than the average monthly rent. Add lower rates into the mix, and you have a demographic who may not be put off by the steeper stamp duty costs. 

The result of all this is that advisers need to continue laying the groundwork right now. This is the moment to reconnect with clients who previously didn’t quite fit the affordability mould.

Preparing for all eventualities in the mortgage market
With the regulator softening its language around stress testing, and affordability metrics beginning to shift, advisers could find themselves in a stronger position to help those you previously couldn’t.

Add in the chance of lenders loosening credit criteria slightly to chase volume, and the picture begins to look much more dynamic. 

That said, we’ve been here before, and caution is warranted. The mental toll that sudden product withdrawals or weekend changes can have on advisers is real – I’ve written about this before, and it still rings true. 

If lenders do pivot sharply to volume strategies from now on, it’s vital they manage that shift with care and consideration. The industry must avoid slipping back into a pattern where advisers are expected to sacrifice work/life balance because of poor planning or rushed announcements. 

So yes, there’s optimism in the air. But it’s a cautious optimism, grounded in the reality of geopolitical instability and market hesitancy. Still, Q2 could well be the ‘warm-up guy’ to Q3, when things could really get going.

Advisers who prepare now – by re-engaging lapsed leads, deepening conversations with first-time buyers and all other potential clients, ensuring they take advantage of all the opportunities and services Paradigm can offer, for example, and who monitor lender signals closely – will be best placed to thrive in what could be a transformative few months for the mortgage market.