From a lender perspective, the recent data on first-time buyer activity is difficult to ignore, particularly given the resilience shown over the past two years.
Yorkshire Building Society’s figures point to sustained demand rather than a brief rebound, with volumes holding up through 2024 and 2025 despite higher rates, cost pressures and the removal of earlier tax support. For lenders assessing where future growth may come from, this consistency matters, because it suggests first-time buyers have continued to transact even when conditions were far from supportive.
IMLA’s expectation that arrears will continue to fall adds another layer of reassurance, especially after a short-term cycle in which many lenders had prepared for much worse outcomes.
Payment performance has been robust, which provides evidence that borrowers adjusted to higher costs more effectively than feared. While unemployment is forecast to rise over the next two years, the increase is expected to be relatively modest, starting from historically low levels, which reduces the likelihood of widespread stress across mortgage books.
Rates, capital confidence and regulatory tone all matter
The path of interest rates remains a key factor in shaping lender appetite, and further Bank Base Rate (BBR) cuts this year would materially improve affordability calculations, particularly at higher LTV levels. Even relatively small reductions can ease stress testing and improve borrower acceptability, which is critical when lending to first-time buyers who often sit close to affordability limits.
At the same time, the FCA’s ongoing work on mortgage rules, specifically looking at how it can amend/cut rules to improve first-time buyer activity, sends an important signal to lenders. The direction is not about loosening standards, but about allowing more judgement where current models fail to reflect real household behaviour. That approach supports lenders who want to lend responsibly, while recognising that rigid affordability tests can exclude borrowers who have demonstrated payment resilience over time.
First-time buyers may benefit most from change
Any increased flexibility is likely to have the greatest impact on first-time buyers, because they are typically the most constrained by deposit size and stress testing rather than by income sustainability. This is particularly relevant when considering renters who have consistently met high monthly payments, often above the cost of a comparable mortgage, but who have - up until now - struggled to evidence affordability under existing rules.
There is also a sizeable pool of unmet demand. IMLA estimates that more than three million people who, based on past trends, might have been expected to buy their first home have not done so. For lenders focused on medium-term growth, this represents opportunity rather than risk, provided it can be accessed in a controlled and well-underwritten way.
The role of the rental sector in shaping future lending
Rising rents and limited supply in the private rental sector are changing borrower behaviour, plus we are about to see just exactly what the Renters’ Rights Act means in practice, which could mean lenders seeing more applicants looking to move from renting into ownership for reasons of cost certainty and security. This raises the question of whether rental payment history should play a greater role in affordability assessments, particularly where it provides clear evidence of payment discipline.
Some lenders are already moving in this direction, but wider adoption would require confidence that such approaches can be applied consistently. For first-time buyers with thin credit files but strong rental histories, this could materially expand the addressable market without undermining credit quality.
High LTV lending remains central
Despite all the positive signals, one constant remains. First-time buyers will continue to rely heavily on high LTV lending, because deposit accumulation is still the main barrier to entry. While there has been some improvement in product availability, with around 260-ish 95% LTV products currently on the market, pricing remains sensitive to capital costs and perceived risk.
For lenders, high LTV lending still attracts greater scrutiny and higher capital requirements, which naturally tempers appetite. This is where private mortgage insurance can support growth, by allowing lenders to increase volumes in this segment while managing downside risk more effectively. It does not remove risk, but it can help lenders balance growth ambitions with balance sheet protection.
Growth forecasts point to a bigger prize
IMLA’s forecasts for gross lending growth over the next two years are significant, with volumes expected to rise from £288bn in 2025 to £350bn by 2027. If this is to be achieved, this level of growth will require lenders to engage more actively with demographics that can drive purchase activity, and first-time buyers are central to that equation.
However, lenders can be (quite rightly) cautious; some are ‘super tankers’ which require a large amount of time to shift course. Changes to strategy, risk appetite and product design do not happen overnight, and the mortgage market has always favoured steady adjustment over rapid shifts. Even with falling rates, supportive regulation and strong demand signals, most lenders will want to see continued stability before materially increasing exposure at higher LTV tiers.
Confidence is building, but caution remains
There are clear reasons for lenders to be more positive about first-time buyer demand/activity/lending than they were a year ago, and the underlying data supports that view. Payment performance has been strong, demand remains deep and the policy environment is becoming more supportive of sensible flexibility.
That said, progress is likely to be measured rather than dramatic. Private mortgage insurance, better use of rental data and a more realistic view of affordability may all help lenders move forward, but the shift will be deliberate, grounded in evidence and shaped by risk discipline rather than optimism alone.
