First-time buyers taking out a mortgage with Lloyds and Halifax will benefit from higher borrowing limits after lenders improved their terms.
Previously, people who took out a mortgage for the first time could borrow up to 4.5 times their income. But yesterday the lenders, which both operate under the umbrella of Lloyds Banking Group, changed their loan-to-income ratio (LTI) to 5.5. This means that starters can borrow 5.5 times their income.
To qualify, first-time buyers must have a total household income of £50,000 or more and a deposit of at least 10%.
It does not apply to those using Shared Ownership or Shared Equity schemes.
Halifax said that, based on a working household income of £50,000, it would increase the maximum available loan from around £224,500 to around £275,000.
John Fraser-Tucker, head of mortgages at Mojo Mortgages, said: “This could be good news for starters as it potentially offers opportunities for home ownership across Britain.
“Our analysis of Britain’s 80 most populous cities shows a significant shift in affordability. Now, the number of affordable cities for solo homebuyers with an average wage has increased from 4% to 21%, while couples with an average salary can consider a median-priced home in 86% of these cities.
“However, it is important to also be aware of the risks. While the ability to borrow more may allow more aspiring first-time buyers to buy their first home, higher borrowing limits come with higher monthly mortgage payments.
“And seen that mortgage interest are still significantly higher than a few years ago, it is crucial that first-time buyers ensure their payments are manageable.”
However, Laith Khalaf, head of investment analysis at AJ Bell, said he thought Lloyds’ new lending limits were sensible because they were only available to people with healthy deposits.
He said: “Lower credit requirements could set off alarm bells for those who remember the run-up to the financial crisis, when unaffordable loans ultimately drove banks, homebuyers and everyone else into a deep dark pit from which we are still emerging.
“At the very least, Lloyds will require a minimum 10% down payment for this mortgage product, which will provide some certainty for the bank and a bit of a cushion for homebuyers not to end up in negative equity.”