First-time buyers in the UK are set to benefit from a significant change in mortgage regulations. The Bank of England (BoE) has adjusted its rules, allowing more prospective homeowners to secure mortgages with higher loan-to-income ratios.
This change is part of a wider effort to make homeownership more accessible, especially as property prices continue to climb in some areas of the country. With economic growth a key focus for the government and the housing market continuing to pose challenges, these new rules could have a notable impact on first-time buyers struggling to get on the property ladder.
Change in Lending Limits Could Benefit Thousands of First-Time Buyers
The Bank of England has increased the number of mortgages that lenders can issue with higher loan-to-income (LTI) ratios.
Previously, only around 10% of new mortgages could exceed 4.5 times a borrower’s income. However, with the updated rules, this figure will rise to 15% across the market, which could potentially lead to 36,000 additional high-LTI mortgages being approved annually, according to estimates from the Bank of England.
This change is seen as a critical step in helping first-time buyers, particularly those who face challenges in meeting the traditional affordability criteria due to high property prices and high living costs. The new rules aim to provide a pathway for many who have struggled to save for a deposit or meet stringent affordability tests.
“It will help people who struggle to get on the property ladder because high rents and living costs have made saving for a deposit and meeting mortgage affordability tests extremely challenging,” said Dame Debbie Crosbie, Chief Executive of Nationwide.
Rising Demand and Competitive Mortgage Rates
The mortgage market is also seeing some increased competition, with several lenders introducing competitive rates for first-time buyers. For instance, Nationwide recently launched a two-year fixed rate of 4.13% and a five-year fixed rate of 4.19%. This comes as lenders compete to attract first-time buyers, who are becoming more active in the market.
The Bank of England’s base interest rate, currently at 4.25%, has contributed to the fluctuation in mortgage rates, with analysts predicting a potential rate cut soon. As mortgage rates are often influenced by the Bank’s base rate, these adjustments could lead to further opportunities for borrowers in the near future.
In the meantime, the availability of 100% mortgages is slowly returning to the market, following earlier changes to stress tests that restrict how much homeowners can borrow. These moves by lenders reflect a desire to ease the financial pressures on buyers and offer new options for those looking to enter the property market.
While the changes are expected to offer some relief to first-time buyers, the overall landscape remains challenging due to rising property prices in many areas. According to Rightmove, there has been a noticeable shift in the types of properties first-time buyers are looking at, with more choosing to purchase in cities outside of London.
