Economics 101: What 2025 has taught us so far

By Max Shepherd, Group Economist at Accord Mortgages

Overview

Now that we’re halfway through the year, it’s a good time to look at what’s been happening in the UK economy and housing market, plus what that might mean for mortgage brokers and their clients throughout 2025.

Global dynamics reshaping domestic markets

While our focus is on the UK, global developments have played a major role this year. In April, President Trump announced a series of tariffs on several countries. These were broader and more aggressive than expected, and the markets reacted quickly.

A temporary 90-day pause has allowed time for negotiations. The UK secured a revised trade agreement with the US early on. Although the terms are less favourable than those in place before this year, they represent an improvement on what was initially proposed. Additional agreements between the UK, EU and India have followed, which has helped boost business confidence. A US-China deal, if completed soon, would further reduce global uncertainty.

Strong start, softer outlook

The UK economy started the year strongly, with growth of 0.7% in the first quarter. But this isn’t expected to last. In April, the economy shrank by 0.3%, suggesting things may be slowing down.

Consumer confidence is improving, although it’s still not where it was before the cost-of-living crisis. Businesses have been more cautious, especially with trade still uncertain. The recent trade deals should help give businesses more confidence going forward. A recession is still a possibility later this year, but it’s not seen as the most likely outcome right now.

Employment trends and earnings pressure

The job market is changing. Unemployment has gone up to 4.6% from 3.8% at the end of last year. That rise was expected, and it’s still low by historical standards. Some of the changes are due to higher employment costs and tax changes, which have led to more people becoming self-employed.

Meanwhile, wages are rising faster than inflation. In April, wages were up by 5.2% compared to the previous year, while inflation was at 3.4%. This means many people now have more money in real terms than they did before, which helps with mortgage affordability.

Interest rates and inflation: A managed descent

Inflation is lower than it was at its peak in 2022, but it’s still above the Bank of England’s target of 2%. The current rate is 3.4%, and it’s expected to fall gradually, reaching the target by 2027. However, events like rising oil prices due to unrest in the Middle East could push prices up again.

The Bank of England has cut the base rate twice this year, bringing it down to 4.25%. More cuts are expected, possibly taking the rate to around 3.75% by the end of the year. These rate cuts have also lowered the stress rates used in mortgage affordability checks, which can help more people qualify for loans or borrow more than before.

Lending and property activity: Stability amid change

The mortgage market has been steady, despite global and domestic challenges. Gross mortgage lending was high in March, at £39.9bn, as many buyers rushed to complete before stamp duty changes came in. Lending dropped to £16.9bn in April, which was expected.

Even so, mortgage approvals stayed solid, with 60,500 in April - just slightly below the long-term average. More people are buying and selling homes compared to this time last year, and house prices have stayed stable overall, despite a small dip around the time of the stamp duty changes.

Lower stress rates, slightly cheaper mortgages and stronger wages are helping keep the market active. These trends could continue through the rest of the year.

Implications for brokers

So far, 2025 has been a year of small improvements and gradual changes. Lower interest rates, higher wages and more flexible stress-testing have all improved affordability for many clients. At the same time, changes in how people work and global uncertainty mean brokers still need to be thoughtful in their advice.

Understanding how wider economic trends affect lending, employment and affordability will help brokers give clients the right guidance. With the market continuing to shift, the role of the broker is more important than ever.