Getting on the housing ladder is a challenge, particularly for those who don’t have financial assistance from the Bank of Mum and Dad, so plans to relax affordability requirements could encourage more activity among prospective buyers.
In her Mansion House speech, the Chancellor attempted to address the challenges by announcing plans to cut red tape in financial services. The availability of mortgages at over 4.5 times a buyer’s income is expected to create 36,000 more mortgages for first-time buyers in the first year of the changes. This comes after the Prudential Regulation Authority announced last week that lenders will be allowed to provide more high loan-to-income (LTI) mortgages, whereas this has been restricted to just 15% of their residential lending per year.
Nationwide responded by lowering the minimum income for its Helping Hand mortgage, whereby first-time buyers can borrow up to six times their income, from £35,000 to £30,000 per annum, with joint applicants now needing a combined salary of £50,000 rather than the previous £55,000. This is expected to help an additional 10,000 first-time buyers every year.
Yorkshire Building Society has also reduced the minimum income threshold for its Boost LTI product from £75,000 to £50,000, extending it to first-time buyers borrowing at 95% LTV.
A permanent mortgage guarantee scheme – Freedom to Buy – providing participating lenders offering 95% LTV mortgages with a government-backed guarantee, also aims to boost home ownership and help first-time buyers onto the ladder.
Commenting on the changes, Mark Harris, chief executive of SPF Private Clients, says: “Easing lending rules while ensuring safeguards remain in place is a sensible approach which should enable more first-time buyers to get on the housing ladder. As we know, first-time buyers are important for the overall functioning of the housing market, as they enable those already on the ladder to move further up it.”
“However, there are already a number of mortgage options at 95% LTV for buyers – the problem is that rates are considerably higher than for those with bigger deposits, and it takes us back to the issue of affordability.”
“Further rate cuts and easing affordability will assist those looking to buy or remortgage in the second half of the year. As ever, advice from a whole-of-market broker is essential to ensure you find the best mortgage option available to you.”
