3 ways the mortgage market just got better

In July, the Chancellor told a summit of financial leaders she was improving the prospects of first-time buyers and lower income property purchasers. Collectively known as the ‘Leeds Reforms’, Rachel Reeves outlined three key announcements that would boost the morale of borrowers across the UK.

1. Borrowing more than 4.5 times your salary should get easier.

Most lenders will multiply a borrower’s annual income by up to 4.5 to settle on an amount they are comfortable lending – this is known as the loan-to-income ratio. They can loan more but banks and building societies are limited to how many times they can do this.

The Bank of England, however, has recommended mortgages exceeding 4.5 times a borrower’s wage should be made more freely available. As a result, the lending cap on high loan-to-income ratios is becoming more generous in certain circumstances.

The impact was almost instant. Following the mortgage update from the Chancellor, Nationwide adjusted its ‘Helping Hands’ mortgage initiative. A single first-time buyer now requires an annual income of £30,000 to qualify, down from £35,000, while a combined salary of £50,000 is enough for joint first-time applicants – down from £55,000.

2. Borrowers will get constant access to low deposit mortgages

Many previous Governments have dabbled with guaranteed low deposit mortgages but many of the schemes have been temporary, meaning some home buyers have missed out on a valuable opportunity. Labour, however, has decided borrowers should have constant access to mortgages that require smaller deposits.

It has just launched Freedom to Buy – a low deposit mortgage initiative that is here to stay. Banks and building societies will enjoy permanent insurance from the Government against some losses that may accompany high loan-to-value lending. This should remove an element of risk and stimulate lending. In return, lenders will offer more mortgages that require a lower deposit of between 5% and 9%.

3. Rent payment history may soon count when borrowing

With monthly rent at parity – and in many cases more costly – than monthly mortgage repayments, it’s bizarre that a lender will not take a reliable rent payment history into consideration when assessing a potential borrower’s suitability.

The Chancellor, however, has indicated that a review of the Financial Conduct Authority’s lending rules should lead to a major shake-up of mortgage affordability checks. The industry is hopeful that a borrower will be able to prove they can afford a mortgage by demonstrating they have paid their rent in full and on time while being a tenant. 

Any positive news from the mortgage market is great for the property industry as a whole. If the recent announcements have given you a confidence boost to move home, contact us to start your buying and selling journey.