The government is considering relaxing mortgage affordability rules to help first-time buyers buy their own home.
It is considering a review of the rules and tests around how much applicants can borrow in relation to their income. Currently, lenders are limited in the number of loans they can offer to applicants who need to borrow 4.5 times their salary.
And consideration could also be given to relaxing stress testing procedures – which assess how a borrower could financially manage their mortgage repayments if interest rates were to rise.
These changes are part of a wider set of recommendations that Chancellor Rachel Reeves has made to the council’s regulator, the Financial Conduct Authority (FCA), on how regulation can support growth.
In response, in its bid to reduce ‘regulatory burden’, the FCA said it would start by simplifying responsible lending and mortgage advice rules to support home ownership. It also said it would ‘consult on the removal of expiring interest-only mortgages and other outdated guidance’.
So far, mortgage lenders have welcomed the proposals. Mark Hollands, head of sales and distribution at Bluestone Mortgages, said: “We welcome the Chancellor’s interest in tackling the challenge of affordability for first-time buyers.
“For too long, lending rules have been too restrictive, making it out of reach for many to get onto the property ladder if they could afford the monthly repayments.”
Bluestone’s research found that 37% of first-time homebuyers cited affordability as the main barrier to homeownership, and a third struggled to make a large enough down payment.
Hollands said: “As such, we hope that government measures focus not only on easing affordability to open the market to thousands of additional participants, but also on increasing support for those with small deposits.”
Arjan Verbeek, CEO of Perenna, said: “We may finally see both regulators and government waking up to the fact that too much regulation can also harm rather than support consumer outcomes – and thus undermine growth . The mortgage market is an example of this.”
He added: “Lenders can typically only provide more than 4.5 times loan to income for around 15% of their loan portfolio, meaning the level of high LTV and LTI lending needed to tackle the crisis of addressing housing affordability simply cannot exist. Without change, many more people will continue to rent instead of becoming homeowners.
“Changing or eliminating the LTI to reflect the products in the market as long-term solutions minimizes the risks facing regulators and would be a quantum leap for the hundreds of thousands of frustrated start-ups being forced out of the market ruled out. ”