Bank’s affordability changes mean bigger mortgages for first-time buyers
By Bulent Kandemir, mortgage expert and Managing Director at Intra Private Finance
As property prices rise at their fastest rate in 15 years, first-time buyers may be wondering whether they will ever get on the housing ladder. Average property prices rose by another 0.5 per cent in February, according to the latest Halifax house price survey, working out at an extra £370 a week. But there is some hope on the horizon. First-time buyers may soon be able to boost their borrowing power as the Bank of England plans to remove its mortgage affordability test.
What’s the current mortgage affordability test?
This test forces banks to apply strict limits when deciding what to lend, ensuring borrowers can afford their mortgage not only when they take it out but should rates rise significantly in the future. The bank’s standard variable rate is used, plus an additional three percentage points, a significantly higher rate than most borrowers will ever pay, given the low interest rate environment. This test has prevented many first-time buyers and those with low deposits from qualifying for a mortgage, even though their rent may be higher than the mortgage payments would be. This doesn’t seem to make much sense.
What removing the test will mean for first-time buyers
Banks will be able to lend thousands of pounds more, giving first-time buyers a real boost when it comes to getting on the property ladder. Lenders will still need to be responsible as it is in nobody’s interests for anyone to take on a mortgage they can’t afford and there will still be affordability requirements set by the City watchdog to protect borrowers.
Where to get advice
First-time buyers should seek advice from a whole-of-market broker such as Home Me, which has access to all the mortgages on the market as well as Deposit Booster equity loans for those struggling to raise a big enough down payment. We can guide you through the process from start-to-finish; please get in touch for more information. Home Me is an Authorised Representative of Intra Private Finance Ltd – Directly Authorised by the FCA.