- Proposals could see more loans given at 4.5 times borrower’s income or more
Banks could relax mortgage lending rules to allow homeowners to borrow more money relative to their income, according to reports.
Financial regulators are considering giving lenders greater freedoms to allow ‘responsible risk taking’ from their mortgage customers, according to The Times.
Lenders are subject to a rule which means no more than 15 per cent of their mortgage book can be comprised of loans above 4.5 times the borrower’s income – but that could change under the plans being discussed.
It comes after the Labour Government wrote to the UK’s 17 regulators, including the Financial Conduct Authority which oversees banking, asking them to come up with ideas to boost growth.
Chancellor Rachel Reeves also met with regulators and told them to embrace a ‘pro-growth’ mindset instead of ‘excessively’ focusing on risk.
At present lenders are restricted by mortgage affordability guidelines imposed after the 2008 crisis, which are designed to prevent people from financially overstretching themselves.
Borrow more: Most first-time buyers are restricted to borrowing no more than 4.5 times their annual income, but this could soon change
Plans could help first-time buyers
Those getting on the housing ladder could benefit most from the proposed changes, as they don’t have equity from an existing property and therefore tend to borrow the most relative to their earnings.
Banks can offer first-time buyers loans of more than 4.5 times their income, but there are tight restrictions on how many. If they do lend at a higher multiple, it will typically be for those with a substantial income and a large deposit.
A move that encourages lenders to offer more mortgages at higher income multiples could help more people to buy their first home.
However, it would also mean higher mortgage payments and more risk.
Speaking to the news agency Newspage, Jack Tutton, director at SJ Mortgages said: ‘Something does need to be done to support first-time buyers, in particular people buying on their own.
‘House prices have far outpaced wage growth, which has compounded the issue, so giving lenders more flexibility to offer higher income multiples at higher loan to values is a step in the right direction.’
Mike Staton, director at Staton Mortgages believes current rules are acting as a barrier for those who do not have the help of the Bank of Mum and Dad.
‘Lenders’ income multiple caps have simply not kept up with the times,’ he said. ‘We are at serious risk of creating another barrier for the working class to get on the ladder.’
However, while a relaxation of affordability rules could help more first-time buyers on to the ladder in the short-term, some argue that allowing bigger mortgages could send house prices higher.
This might make homes even less affordable in the long run.
‘There is a risk that enabling people to borrow more will once again send house prices skyrocketing unless the underlying supply issue is resolved,’ said Jonathan Moser, chief executive at property management company Mo’Living.
‘That arguably risks leaving people exposed as they may have overborrowed and potentially overpaid.
‘The Government, along with regulators, should tread carefully.’
Rohit Kohli, director at broker The Mortgage Stop says the Government needs to tackle the root of the problem and free up supply.
‘To truly stimulate the property market and help first-time buyers, the Government must tackle the root causes of the supply problem,’ he said.
‘Too many developers are sitting on land with planning permission, and there’s an unacceptable number of vacant properties that could be put to use.
‘While these proposals may give buyers more borrowing power, they echo the principles of schemes like Help to Buy, which improved access but didn’t necessarily lead to long-term affordability.
‘A balanced approach addressing both supply and demand is needed to have a lasting impact.’
