Chancellor Rachel Reeves delivered her Spring Statement on Wednesday, March 26, confirming a gloomy economic outlook. The Office for Budget Responsibility (OBR) forecasts UK economic growth to halve from 2% to just 1% in 2025.

Just hours before the Spring Statement, UK inflation was reported to have risen by 2.8% in February—slightly below economists’ expectations by 0.1%. However, any relief this brought is expected to be short-lived. Energy bills and higher employer National Insurance Contributions set to take effect next month could push inflation higher, and forecasts suggests that inflation could reach around 3.75% by Q3 2025.

While inflation is expected to ease thereafter, the Bank of England (BoE) will closely monitor any lasting inflationary pressures. In March, the BoE kept the base rate at 4.5%, as widely expected, due to ongoing concerns over stubborn inflation and January’s higher-than-anticipated 3% inflation rate.

Market resilience putting a spring in its step

Despite economic challenges, the property market has shown resilience over the past 12 months, reflected in continued house price growth. According to Zoopla, February’s annual house price continued its upward trend, though it dipped slightly to 1.8% from 1.9% in January.

Zoopla also reports an 11% increase in the number of homes for sale, suggesting good confidence amongst sellers, and offers buyers more choice as the traditionally busy spring market gets underway. However, the number of agreed sales is rising at a slower rate at 5%, reinforcing the presence of a buyer’s market.

Will mortgage rates drop in the future?

With the base rate unchanged, mortgage rates are likely to stay at current levels for now, provided funding costs remain stable. However, as the stamp duty rush settles, some lenders may reduce rates to attract buyers in the spring property market.

For mortgage rates to drop significantly, the BoE would likely need to make a major base rate reduction, along with a fall in SONIA (Sterling Overnight Index Average) swap rates, which influence fixed-rate mortgages. While a rate cut in May is possible, it’s not guaranteed.

Average mortgage rates have stabilised at approximately 4.4% in recent months, according to Zoopla. Select deals in the low 4% range, and even some sub-4% offers, are currently available for borrowers with large deposits or significant home equity.

Potential impacts from the Spring Statement

The Chancellor missed an opportunity to announce support measures for first-time buyers to get onto the housing ladder, a crucial group for maintaining a healthy property market. No changes were announced to Lifetime ISAs (Individual Savings Accounts), and stamp duty changes will take effect in the coming days, increasing the tax burden for many first-time buyers.

Employers’ National Insurance Contributions (NIC)

The increase in employers’ NIC from April 2025 has been suggested to impact businesses and the job market, with many businesses anticipated to reduce hiring due to rising costs. This could lead to increased unemployment, affecting household incomes and mortgage affordability.

Housebuilding

The OBR has said the reforms to housebuilding could boost the number of homes built by 170,000 over the next five years. We expect new builds to be a priority for lenders, with criteria being tailored to support lending in this area.

Inheritance tax and pensions

In the Autumn Budget, Reeves announced that money left in a defined contribution pension after your death will be pulled into the inheritance tax (IHT) from April 2027. As a result, we are seeing clients consider the following options:

  • Taking a whole of life insurance – Taking out a policy designed to cover any IHT liabilities when they arise.
  • Remortgaging to gift money earlier than originally planned – Accessing funds through a remortgage to gift money to children sooner, allowing them to enjoy financial support earlier in life, with the intention of eventually downsizing to repay the mortgage.
  • Equity release – For those planning to stay in their home long-term, using equity release to free up funds for gifting, following a similar approach to remortgaging.
  • Downsizing and gifting – Selling the family home earlier than originally planned to gift money to children.

If you’re considering these options or would like to discuss how they may apply to your specific circumstances, please get in touch. Please be aware, Private Finance is not a tax advisor, and this page does not constitute tax advice. Should you like us to introduce you to a specialist in this area, please let us know.

In summary

While the Spring Statement confirmed a challenging economic outlook, the mortgage market remains relatively stable and we expect there to be minimal disruption.

House prices continue to show resilience, and while mortgage rates are unlikely to drop significantly in the current environment, some lenders continue to offer competitive deals. The increase in stamp duty and employer NIC present challenges, but proactive borrowers could take advantage of existing deals for more certainty while maintaining flexibility for future rate movements.

Many lenders allow borrowers to secure a rate now while still having the option to reassess if better rates become available before their completion date. This approach provides protection against potential future increases while allowing individuals to move onto a more competitive rate should one arise in the coming months.

To learn more about your mortgage options, you can reach our team on 0800 980 8777 or email info@privatefinance.co.uk.

You can also book an appointment at a time that is convenient for you here.

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