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The 2025 Mortgage Market: Navigating New Realities

A Year of "Financial Defence"

In the 2025 mortgage market, the UK financial landscape has shifted fundamentally. For homeowners and investors alike, the focus has moved from aggressive asset accumulation to wealth protection—a strategy we at Liddle Perrett call “Financial Defence.”

While we have seen some positive signs, such as the Bank of England cutting the base rate to 4.0% in August 2025, the 2025 mortgage market remains challenging. Inflation has been stubborn, hovering around 3.99% for much of the year, which means interest rates are staying higher for longer than many borrowers had hoped.

This report provides a detailed breakdown of the current trends in the residential and commercial sectors and offers a forward-looking analysis of what to expect in 2026.

Residential 2025 Mortgage Market: Resilience and New Solutions

The residential sector of the 2025 mortgage market has faced a “bittersweet” reality. While rates have come down slightly, affordability remains a major hurdle for many families.

The "Mortgage Squeeze" and Rate Trends

Roughly 3.6 million households have had to remortgage this year, transitioning from historically low rates to new deals averaging around 5%. For the typical family, this has resulted in finding an extra £107 per month.1

However, the market has not crashed; it has adapted. We are currently seeing an unusual situation in the 2025 mortgage market where two-year fixed rates (approx. 5%) are slightly cheaper than five-year fixed rates.1 This presents a strategic choice:

  • Fix Short-Term: Take a two-year deal hoping rates fall by 2027.
  • Fix Long-Term: Pay a premium now for five years of certainty.

Help for First-Time Buyers

Getting on the ladder remains difficult, but lenders are innovating to keep the 2025 mortgage market moving:

  • Borrowing More: Lenders have increased “Loan-to-Income” caps, helping higher earners with smaller deposits buy the homes they can afford.1
  • 95% Mortgages: The government has made the mortgage guarantee scheme permanent, encouraging banks to lend to those with only a 5% deposit.1
  • 100% Mortgages: These have returned to the market but are stricter than in the past, often requiring a track record of rental payments to prove reliability.

The Evolution of Equity Release

For older homeowners (55+), Equity Release has evolved into a mainstream financial planning tool. In the 2025 mortgage market, products are safer and more flexible:

  • Interest-Only Options: Borrowers can pay monthly interest to prevent the debt from growing.
  • No Negative Equity Guarantee: Ensures you never owe more than the value of your home.
  • Bank of Gran and Grandad: Many are utilizing these funds to help grandchildren bridge the deposit gap.
Find out More about your Options    

Commercial and Buy-to-Let: The Shift to Corporate Structures

For investors, the 2025 mortgage market has been defined by tax changes. The era of the “casual landlord” is effectively over, with professional investors restructuring portfolios to survive.

The Rise of the Limited Company (SPV)

The most significant trend this year is the mass migration to Special Purpose Vehicles (SPVs)—Limited Companies set up specifically to hold property.

Why is this dominating the 2025 mortgage market for investors?

  • Tax Efficiency: In an SPV, you can deduct 100% of your mortgage interest from your profits before paying tax. Individual landlords cannot do this effectively anymore.
  • Protection: It separates personal assets from business risks.

Commercial Lending Rates

Commercial borrowing is available but selective. Lenders favor “safe” assets like logistics warehouses and prime offices.

  • Typical Rates: Between 5.25% and 7.75%.
  • Loan-to-Value: Lenders usually offer up to 60-75% of the property’s value.

Bridging Finance

Bridging loans are no longer just for emergencies. Investors in the 2025 mortgage market are using them strategically to:

  • Break Chains: Secure a new property before the old one sells.
  • Refurbish: Buy a property that needs work, improve it to increase the yield, and then refinance onto a standard commercial mortgage.

Looking Forward: The Mortgage Market in 2026

As we look beyond the current 2025 mortgage market, we expect stabilization, but costs will remain higher than the pre-2022 norms.

Interest Rates Outlook

Do not expect interest rates to plummet. Experts predict the Bank of England base rate will settle between 3.25% and 3.75% in 2026. Mortgage lending growth is expected to slow down slightly to 2.8% as the market adjusts to these new costs.

The Tax Hikes Coming in April 2026

The most critical date for business owners and investors is April 2026, when new tax rules announced in the 2025 Budget come into force:

  • Dividend Tax Increase: The tax on dividends (profits taken out of a company) will rise. The basic rate increases to 10.75% and the higher rate to 35.75%.

Strategic Advice: This change makes extracting money from a company more expensive. Many investors will likely choose to retain profits inside their SPV to reinvest, rather than taking it as personal income.

House Prices

We expect house price growth to remain low but stable, at around 1% to 2.5% nationally.7 The “boom” years of rapid price rises are paused. The focus for 2026 should be on finding properties that generate strong monthly rental income (yield) rather than banking on capital appreciation.

And finally…

The message for the 2025 mortgage market and beyond is clear: Get Professional.

  • For Homeowners: Shop around. Rates are volatile, and professional advice can help you navigate the choice between short-term and long-term fixes.
  • For Investors: The tax environment is getting tougher. If you haven’t reviewed your portfolio structure yet, you must do so before April 2026. Using a Limited Company (SPV) structure is becoming essential for tax efficiency.

Frequently Asked Questions (FAQs)

Will mortgage interest rates go down in 2026?

While the Bank of England cut the base rate to 4.0% in August 2025, borrowers should not expect a return to the ultra-low rates of the past. Forecasts suggest the base rate will stabilize between 3.25% and 3.75% throughout 2026. This means mortgage rates are likely to settle in the mid-3% to 4% range rather than dropping significantly lower.

The Budget has introduced a “Fiscal Reckoning” that impacts how you extract profit. From April 2026, Dividend Tax rates will increase by 2% (rising to 10.75% for basic rate and 35.75% for higher rate taxpayers). Additionally, Property Income Tax rates for personal owners will rise starting in April 2027. This makes “Financial Defence”—specifically restructuring portfolios to retain profits—essential.

For most higher-rate taxpayers, the answer is increasingly yes. Using a Special Purpose Vehicle (SPV) is a primary defense against the new tax hikes. Crucially, SPVs allow you to deduct 100% of mortgage interest from your profits before tax, avoiding the punitive Section 24 rules that apply to unincorporated landlords. This structure also protects you from the upcoming personal Property Income Tax hikes.

Yes, 100% mortgages (requiring no deposit) have returned to the market, but they are not the same as the “sub-prime” loans of the past. These products are strictly regulated and typically require a proven track record of rental payments to demonstrate that you can afford the monthly repayments.

Commercial lending remains selective but active. As we head into 2026, commercial mortgage rates typically range between 5.25% and 7.75%. Lenders are offering the best margins (2%–4% above base rate) on “Tier 1” assets like logistics hubs and prime offices, while secondary retail assets attract higher costs.

Yes, the market has evolved to focus on safety and flexibility. Modern Lifetime Mortgages in 2025 come with a mandatory “No Negative Equity Guarantee,” ensuring you (or your estate) will never owe more than the value of your home. New features also allow borrowers to make interest-only payments to stop the debt from compounding, preserving more inheritance for families.

Data Sources

Liddle Perrett Analysis & Market Strategy

Taxation & Budget 2025 Data

Market Forecasts & Lending Data (2026 Outlook)

House Price & Market Outlook (Zoopla/Knight Frank): https://www.devere-group.com/are-uk-house-prices-falling-2026-outlook/

Disclaimer

Always seek professional advice from a qualified accountant, tax adviser, or property-finance specialist before acting.

The guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK

The information contained within was correct at the time of publication but is subject to change.

Commercial mortgages are referred to a third party. Neither Liddle Perrett Ltd nor PRIMIS are responsible for the service received. These services are not regulated by the Financial Conduct Authority and may have limited consumer protection

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE