- More mortgages to become available at over the standard 4.5x income cap
More first-time buyers could get bigger mortgages, as Rachel Reeves enables lenders to loosen their lending rules to help more people on lower incomes buy a home.
The Chancellor is expected to announce the reforms to financial regulation at a summit of top finance executives in Leeds today, ahead of her Mansion House speech in the City of London.
Since 2014, lenders have been subject to a rule which means loans of more than 4.5 times the borrower’s annual income can only make up 15 per cent of their mortgage book.
For example, someone earning £40,000 a year would usually be restricted to borrowing no more than £180,000.
This rule now looks set to change with more mortgages being made available at higher income multiples – with some even as high as six times annual salary.
On a £40,000 annual salary that could mean being able to borrow £240,000 towards a first home.
It follows the Prudential Regulation Authority’s recent announcement, enabling lenders to increase high loan-to-income lending.
It also follows recent recommendations by the Bank of England that some banks and building societies offer more high loan-to-income mortgages.
Labour claims the move will create up to 36,000 additional home loans for first-time buyers over the first year.
Nationwide to offer more mortgages at 6x income
Nationwide is also set to widen access to its ‘Helping Hand’ mortgage, which allows some first-time buyers to borrow up to six times their income with deposits as low as 5 per cent.
From Wednesday, eligible first-time buyers can apply for the mortgage with a £30,000 salary, down from £35,000, and joint applicants with a £50,000 combined salary, down from £55,000.
The building society says the Helping Hand mortgage has been used by more than 57,000 customers since its launch in 2021, and that today’s move could enable 10,000 more to get on the property ladder.
Nicholas Mendes, mortgage technical manager at broker John Charcol thinks the reforms will help first-time buyers who have struggled to borrow enough to buy a home, despite having a stable incomes and a strong record of paying rent.
He said: ‘Many would-be buyers have felt locked out of the system, not because they lack financial discipline or reliability, but because the rules haven’t kept pace with the way people actually live and budget.’
‘Lowering the income threshold for products like Nationwide’s Helping Hand mortgage will open the door for thousands more people, especially key workers and young professionals, to get on the ladder.’
Mortgage broker Aaron Strutt of Trinity Financial, added: ‘It can be really hard for those on lower incomes to borrow anywhere near the amount they need to buy a home, even if they have a large deposit.
‘The argument is that they have less disposable income and therefore they can’t afford a larger mortgage – even though many of them are paying high rents.’
