How the Cost-of-Living Measures Could Improve Mortgage Affordability

💡 Budget 2025: How the Cost-of-Living Measures Could Improve Mortgage Affordability

By /

Quick Summary

  • Budget 2025 includes several cost-of-living reductions that improve disposable income.
  • Lenders assess mortgage affordability based on your monthly outgoings — not just your income.
  • Lower bills = higher borrowing power, especially for first-time buyers and lower-income households.
  • Combined with falling fixed mortgage rates, affordability is expected to loosen through 2025.
  • Remortgagers, movers and landlords all benefit from improved affordability metrics.

1 | Why Cost-of-Living Changes Matter for Mortgages

Lenders don’t just look at what you earn. They look closely at:

  • Your regular monthly bills
  • How much money you have left after costs
  • Whether you can still afford repayments if rates rise
  • Your spending habits (via bank statements)

So when the Budget brings measures that reduce household expenses, it directly impacts how much you can borrow.

Even £30–£80 a month difference can help buyers pass affordability that previously failed.

2 | Key Budget Measures That Improve Affordability

✔ Energy-bill support (£150 reduction)

Lower gas and electricity costs mean lenders will apply smaller assumed monthly utilities, immediately increasing affordability calculations.

✔ Public transport and fuel measures

Freezes to regulated fares, plus ongoing support for transport infrastructure, means lower commuting costs — another key factor in affordability.

✔ Inflation easing

Lower inflation means everyday essentials cost less.
Lenders use ONS household-spending data in their affordability models — when the national average spend drops, borrowing power rises.

✔ Higher real wages

With wages rising faster than prices, disposable income increases.
This is one of the biggest drivers of stronger mortgage affordability through 2025–26.

3 | Impact on First-Time Buyers

First-time buyers feel the biggest benefit because they’re often near the margins of affordability.

Budget 2025 will help by:

  • Boosting take-home pay
  • Lowering fixed monthly bills
  • Reducing stress-test calculations applied by lenders
  • Improving saving ability for deposits
  • Increasing lender confidence

This is why many analysts expect affordability for FTBs to improve by 3–6% across 2025.

4 | Impact on Home Movers

Movers benefit from improved affordability too — particularly if:

  • You’re buying a larger home
  • You need a higher loan-to-income ratio
  • You’re stretching your budget for school areas or extra bedrooms

Lower living costs tighten the gap between what you want to borrow and what lenders will allow.

5 | Impact on Remortgagers

If your fixed rate is ending soon:

  • Lower household bills make product transfers smoother
  • Lenders may accept higher borrowing amounts for debt consolidation
  • Lower stress tests = easier remortgage approvals
  • Falling fixed rates + lower outgoings = overall improved payment security

Many homeowners coming off old 2% fixes will still see increases — but the Budget helps soften the jump.

6 | Impact on Landlords

Budget cost-of-living measures indirectly support renters too — which stabilises rental income.

For landlords, this means:

  • Better affordability when refinancing
  • Less tenant arrears pressure
  • More stability in yield forecasting
  • Improved portfolio lending options

Combined with expectations of lower mortgage rates, the Budget is generally landlord-friendly in affordability terms.

7 | Will All Lenders Improve Affordability?

Not instantly — but many will.

We’re already seeing lenders:

  • Reduce stress rates
  • Increase allowable loan-to-income ratios
  • Cut their assumed allowances for monthly bills
  • Look more favourably at discretionary income

Expect full affordability updates to roll out between April and September 2025.

8 | Should You Act Now or Wait?

👍 Act now if:

  • Your fixed deal ends within 6 months
  • You’re already close on affordability
  • You want to lock a rate before the next market shift
  • You qualify for a favourable LTV band today

🤔 Wait a little if:

  • You’re very close to a bigger deposit band (e.g., 10% → 15%)
  • You anticipate further wage increases
  • Your bank statements will look cleaner in a month or two

Most buyers today are securing a rate now, then switching to a cheaper one later if rates fall again.

📞 Want to Check Your Updated Affordability After the Budget?

We don’t provide advice directly — but we can introduce you to an FCA-authorised mortgage specialist who can:

  • Recalculate your borrowing power
  • Check affordability with multiple lenders
  • Compare today’s fixed, tracker and high-LTV options
  • Discuss whether waiting or acting now makes sense for you

Scroll to Top