UK first-time buyer mortgages may become cheaper following a crucial suggestion by the Bank of England to ease current lending limits on increased loan-to-income ratios. In its latest Financial Stability Report, the Bank suggested providing lenders with more flexibility to lend above the typical 4.5x income level, a major barrier to buying for a large number of first-time buyers.
Extra Flexibility in Loan-to-Income Caps
Today, most lenders only extend less than 10% of new mortgages at more than 4.5 times a borrower’s salary. Under the new proposal, separate building societies and banks can lend more than 15% of new lending at this higher LTI level, although there will still be the industry-wide aggregate limit of 15%. This would result in another 36,000 higher LTI mortgages being granted annually, the Bank of England estimates.
Benefits for First-Time Buyer Mortgages
These changes are expected to help more first-time buyers in the UK access mortgages, particularly in areas where home prices are relatively higher than salaries. As the rents and cost of living continue to rise, many potential homebuyers have been unable to save for the deposit or pass stringent tests of affordability. Housing market-wide, one of the UK’s biggest lenders, Nationwide, also embraced the change.
Mortgage Market Outlook
Though the flexibility of lending is increasing, still the mortgage market remains under pressure. Bank of England states that 3.6 million mortgage deals, or around 41% of total UK home loans, are due to reach their end in the next three years. For the majority, it will mean an average increase of £107 a month in repayments as they move onto new rates. But this monthly increase is less painful than the previously forecasted £146, thanks to recent rate cuts by the Bank of England. Now with four cuts since last August, 2.5 million families (around 28% of mortgage holders) will get a cut on their mortgage bills.
Speak To a Mortgage Adviser
With rates fluctuating and things seemingly improving in favour of first-time buyers, the best place to start is with a quality mortgage adviser. If you are looking at getting a new mortgage, please feel free to give us a call at Oportfolio Mortgages. We are here to help.
