How falling property values affect your loan options

The market shift you need to understand

UK property prices have cooled, and the change is starting to feed directly into lending decisions. According to the latest official releases, average UK house prices fell 0.6% between August and September 2025, taking the annual growth rate down to 2.6% and the average property value to around £272,000. England posted a 0.8% monthly drop with average values at £293,000, though regional differences are striking: London saw a 1.1% monthly fall and a 1.8% annual decline to roughly £556,000, while parts of the North East edged higher month on month. Slower growth means less equity accrues passively, and monthly declines can chip away at the cushion many borrowers rely on when remortgaging or releasing funds.

Why does this matter for loans? Lenders care about risk. Two metrics anchor their decisions: your loan-to-value ratio and your loan-to-income ratio. When prices dip, your LTV rises even if your mortgage balance does not change. A higher LTV can move you into a pricier rate band or shut off certain products altogether. At the same time, a tougher funding backdrop has encouraged a flight to quality. Research indicates lenders are extending less credit to higher risk borrowers, particularly those with LTI above 4.5, after recent market shocks. If you are stretching income or buying in a segment under pressure, you may find fewer offers and higher rates.

The picture is nuanced. New builds have behaved differently, with prices rising much faster than resales earlier in 2025. That is not an automatic positive for borrowers, because rapid gains often coexist with thinner transaction data and tighter lender criteria. Meanwhile, fewer housing starts and permissions suggest supply will remain constrained, which could temper further price falls but also limit a sharp rebound. In short, valuations are more finely balanced and lender appetite more selective.

For homeowners approaching a fixed-rate expiry, this environment raises practical questions. If your property was valued at the top of the cycle, a new valuation could push your LTV into a higher band, affecting pricing. If you intend to borrow more, a lower value can cap the additional advance. For first-time buyers, softer prices may help deposits go further, but stricter LTI caps and fewer high LTV products can offset that benefit. The goal now is to quantify your equity, understand how lenders are pricing risk, and choose a route that preserves optionality.

At Kandoo, a UK-based retail finance broker, we track these shifts daily. Understanding APR is not just about percentages - it is about what you will pay in real terms as valuations and lender criteria move. The right plan can reduce costs, widen your product set, and protect you against avoidable surprises.

Who benefits from a clear plan right now

If you are remortgaging within the next 12 months, a fall in your property’s value could change the deals available to you. A refinanced loan at 75% LTV is typically cheaper than one at 80% or 85%, so even a modest valuation drop can move you across rate tiers. Homeowners seeking additional borrowing for renovations may find their capacity compressed, as lenders calculate affordability against both income and updated value. First-time buyers may welcome marginally lower purchase prices, but lenders’ preference for lower risk profiles means those with high LTI, smaller deposits, or more variable income should expect closer scrutiny and potentially fewer choices.

Buy-to-let landlords face another layer: rental stress tests. Lower values can push leverage higher, while cautious lenders may require stronger income cover. In London, where annual prices have fallen fastest, remortgaging or extracting equity can be especially challenging. If you own a new build, your valuation path may differ from local resales, so product availability can vary. Whatever your position, a precise understanding of your LTV, LTI, and how your region is moving is central to choosing the right loan at the right time.

Terms that drive decisions

• Loan-to-value (LTV): The mortgage balance divided by the property value, expressed as a percentage. Lower LTV usually means lower rates and wider product choice.

• Loan-to-income (LTI): Your total mortgage relative to your gross annual income. Many lenders cap lending around 4 to 4.5 times income, with tighter caps for higher risk cases.

• Stress rate: The interest rate used to test affordability beyond the initial fixed rate, ensuring you can withstand future increases.

• Remortgage: Switching to a new deal with your current lender or a new lender, usually as a fixed rate expires.

• Product transfer: Moving to a new rate with your existing lender without full underwriting; often easier, but not always the cheapest.

• Equity: The portion of the property you own outright. Falling values reduce equity and may raise your LTV.

• New build premium: The tendency for new properties to be priced above comparable resales. Lenders may apply specific criteria or lower maximum LTV.

Paths you can take today

1. Early valuation check with your current lender Request an indicative valuation and product options now. If your LTV band is at risk, you can plan deposit top-ups or debt reductions to hold a better tier.

2. Whole-of-market remortgage search Compare offers across lenders, including specialist providers. A broker can locate products that remain competitive at your revised LTV and LTI.

3. Product transfer as a fallback If affordability is tight or valuations come in low, transferring with your current lender can avoid full underwriting and reduce friction, albeit sometimes at a higher rate.

4. Overpayment or lump-sum reduction Reducing your balance to nudge your LTV into a lower band can improve pricing. Check early repayment charges and time overpayments to limit fees.

5. Add a guarantor or adjust term Where permitted, adding income support or lengthening the term can improve affordability tests. Consider the long-term interest cost before extending substantially.

6. Consider smaller additional borrowing or phased works If equity is constrained, scale back borrowing or spread projects. Reassess once valuations stabilise or improve.

7. Revisit property type and region for new purchases Regional variation is wide. In London, sharper falls and tighter criteria may require larger deposits, while some northern regions present more resilient affordability profiles.

What it could cost and the trade-offs

Do you fit the criteria right now

Eligibility is tightening, and the details matter. Lenders are prioritising applicants with stable income, clean credit files, and lower LTVs. If your LTI exceeds roughly 4.5, expect additional constraints, particularly in segments most affected by recent shocks. Affordability will be assessed against a stressed rate, not just your introductory rate, so variable income and higher outgoings reduce headroom. Property type also matters. New builds often carry stricter loan caps and documentation requirements, despite strong price prints earlier in the year. Flats with shorter lease terms or buildings with unresolved cladding issues can face further restrictions.

Your region can influence the outcome. In London, where monthly and annual declines have outpaced other areas, lenders may haircut valuations more conservatively. Conversely, areas with recent resilience can see steadier panel valuations. If you are remortgaging, check whether your lender uses an automated valuation model or requires a physical inspection, as that can change your LTV band. Ultimately, the best outcomes go to borrowers who prepare documentation early, manage balances to defend key LTV thresholds, and choose products that align with their realistic income trajectory.

The process in practical steps

1. Pull credit reports and correct any errors promptly.

2. Get an indicative valuation from your current lender.

3. Calculate updated LTV and LTI using new figures.

4. Compare whole-of-market rates across relevant LTV bands.

5. Decide between remortgage or product transfer path.

6. Optimise affordability by adjusting term or overpaying.

7. Submit a full application with complete documentation.

8. Track underwriting, valuation, and offer to completion.

Upsides and downsides at a glance

Pitfalls to keep in mind

Do not assume your previous valuation will stand. Monthly declines, particularly in London, can push you into a different risk category. If your fixed rate ends soon, start the process early, because slower pipelines and cautious underwriting can lengthen timelines. Be realistic about income multiples, especially if bonuses are variable. For additional borrowing, factor in that lenders may not advance the full amount you expect at higher LTVs. Lastly, consider the longer-term outlook: fewer housing starts suggest constrained supply, but that does not guarantee quick price recovery. Build a plan that works if values stay flat for longer than you hope.

Consider these alternatives too

1. Rate switch now with a longer fix to stabilise payments.

2. Partial capital repayment to defend a crucial LTV band.

3. Secured loan or second charge if a remortgage is uneconomic.

4. Shorter term with higher payments to reduce balance faster.

5. Delay major borrowing until valuations or income improve.

Your questions answered

Q: How exactly does a 0.6% monthly price fall affect me? A: It raises your LTV slightly. If you were close to an LTV boundary, you could slip into a higher, costlier tier at remortgage.

Q: Are London borrowers affected differently? A: Yes. London’s 1.1% monthly and 1.8% annual declines mean valuations may be more conservative, reducing equity and tightening product choice.

Q: Is it still possible to borrow with a high LTI? A: It is possible, but lenders are more selective. Caps around 4 to 4.5 times income are common, with fewer options above that range.

Q: Do new builds help or hinder borrowing? A: Strong new build prices can support equity, but lenders often apply stricter criteria, lower maximum LTVs, and request more evidence due to fewer comparable sales.

Q: Should I rush to remortgage? A: You should prepare early rather than rush. Get valuations, compare options, and lock a rate when the product aligns with your risk and timeline.

Q: What if my valuation comes in lower than expected? A: Consider product transfers, overpayments to defend your LTV band, or a second charge if a full remortgage is uneconomic.

What to do next

Start with your numbers. Obtain a fresh valuation, calculate your current LTV and LTI, and check your credit file. Speak to a whole-of-market broker such as Kandoo to map available products at today’s criteria. If a better LTV tier is within reach, plan targeted overpayments or a slightly longer term to pass affordability. Lock a suitable rate once the figures work for you.

Important information

This article provides general information only and is not personal advice. Product availability and eligibility change frequently. Always consider independent advice, read lender documents carefully, and base decisions on your circumstances and risk tolerance.