MRT1 LO5: The economic and regulatory context for mortgage advice

Advice does not happen in a vacuum. House prices, interest rates, the way lenders fund themselves, buy-to-let policy and the regulatory framework all shape what a customer can borrow and what is suitable. LO5 of the CeMAP® MRT1 unit asks you to understand that context. Figures below are as at 30 October 2026.

1. The property market and what affects it

House prices are set by supply and demand in local markets. The main conditions are:

Factor	Effect
Interest rates	Higher mortgage rates reduce what buyers can afford and usually cool demand; falling rates do the reverse
Credit availability	Lenders' LTV and loan-to-income (LTI) limits, and regulatory limits, decide how much buyers can borrow
Employment and earnings	Job security and wage growth support demand and affordability
Consumer confidence	Buyers delay moves when they fear falling prices or job losses
Housing supply	New-build completions, planning consents and existing owners' willingness to sell
Demographics	Population growth, household formation, migration, an ageing population
Government policy	Stamp duty, buyer schemes and rental sector rules

Policies affecting the market in 2026:

• SDLT (England and NI): nil band £125,000, first-time buyer relief to £300,000 on prices up to £500,000, and a 5% surcharge on additional dwellings (since 31 October 2024).
• Mortgage Guarantee Scheme: made permanent from July 2025 to support 91% to 95% LTV lending on owner-occupied repayment mortgages.
• Right to Buy (England): maximum discounts cut sharply for applications from 21 November 2024, to between £16,000 and £38,000 depending on the region.
• "Your First Home" (20% equity loans in England) was announced in Budget 2026. It is not yet available: pre-registration is planned from late 2026 and first loans from April 2027.

A falling market increases the risk of negative equity, where the mortgage exceeds the property's value. This traps borrowers, because they cannot sell or remortgage without finding cash.