Home Money Banks could offer bigger mortgages as Labor urges regulators to relax rules

Banks could offer bigger mortgages as Labor urges regulators to relax rules

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Borrow more: Most first-time buyers are restricted to borrowing no more than 4.5 times their annual income, but this could soon change
  • The proposals could include more loans made at 4.5 times the borrower’s income or more.

Banks could reportedly relax rules on mortgage lending to allow homeowners to borrow more money relative to their income.

According to The Times, financial regulators are considering giving lenders greater freedoms to allow for “responsible risk-taking” by their mortgage customers.

Lenders are subject to a rule that means no more than 15 percent of their mortgage portfolio can be made up of loans greater than 4.5 times the borrower’s income, but that could change depending on the plans being discussed.

It comes after the Labor Government wrote to the UK’s 17 regulators, including the Financial Conduct Authority which oversees banking, asking them to put forward ideas to boost growth.

Chancellor Rachel Reeves also met with regulators and told them to adopt a “pro-growth” mindset rather than focusing “overly” on risk.

Lenders are currently restricted by mortgage affordability guidelines imposed after the 2008 crisis, which are designed to prevent people from straining financially.

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 moving up the housing ladder could benefit most from the proposed changes, as they do not have equity in an existing property and therefore tend to borrow more relative to their income.

Banks can offer first-time buyers loans of more than 4.5 times their income, but there are strict restrictions on how many. If they lend at a higher multiple, it will usually be to those with a substantial income and a large deposit.

A move that encourages lenders to offer more mortgages with higher income multiples could help more people buy their first home.

However, it would also mean higher mortgage payments and more risk.

Speaking to news agency Newspage, Jack Tutton, director of SJ Mortgages, said: “Something needs to be done to support first-time buyers, particularly people buying on their own.”

“House prices have far outpaced wage growth, exacerbating the problem, so giving lenders more flexibility to offer higher income multiples with higher loan values ​​is a step in right direction.”

Mike Staton, director of Staton Mortgages, believes the current rules act as a barrier to those without help from the Bank of Mum and Dad.

“Multiple limits on lender income simply have not kept up with the times,” he said. “We run a serious risk of creating another barrier for the working class to climb the ladder.”

However, while a relaxation of affordability rules could help more first-time buyers get on the ladder in the short term, some argue that allowing larger mortgages could push up home prices.

This could make housing even less affordable in the long term.

“There is a risk that allowing people to borrow more will send house prices soaring again unless the underlying supply problem is resolved,” said Jonathan Moser, chief executive of property management company Mo’ Living room.

‘Arguably that risks leaving people exposed as they may have gone into debt and overpaid.

“The government, along with regulators, should tread carefully.”

Rohit Kohli, director of brokerage The Mortgage Stop, says the government must address the root of the problem and release supply.

“To truly stimulate the housing market and help first-time buyers, the Government must address the root causes of the supply problem,” he said.

‘There are too many developers on land with planning permission and there are an unacceptable number of empty properties that could be taken advantage of.

‘While these proposals may give buyers more borrowing power, they echo the principles of programs such as Help to Buy, which improved access but did not necessarily lead to long-term affordability.

“A balanced approach that addresses both supply and demand is needed to have a lasting impact.”

How to find a new mortgage

Borrowers who need a mortgage because their current fixed-rate agreement is ending or because they are buying a home should explore their options as soon as possible.

Quick mortgage search links with This is Money partner L&C

> Mortgage rate calculator

> Find the right mortgage for you

What happens if I need to remortgage?

Borrowers should compare rates, talk to a mortgage broker and be prepared to take action.

Homeowners can close a new deal six to nine months in advance, often with no obligation to accept it.

Most mortgage agreements allow fees to be added to the loan and are only charged when requested. This means borrowers can get a rate without paying expensive processing fees.

Please note that by doing this and not paying off the fee upon completion, interest will be paid on the fee amount for the entire term of the loan, so this may not be the best option for everyone.

What happens if I am buying a house?

Those with agreed-upon home purchases should also try to lock in rates as early as possible, so they know exactly what their monthly payments will be.

Buyers should avoid overreaching and be aware that home prices may fall as higher mortgage rates limit people’s borrowing capacity and purchasing power.

How to compare mortgage costs

The best way to compare mortgage costs and find the right deal for you is to speak to a broker.

This is Money has a long-standing partnership with free broker L&C, to provide you with free, expert mortgage advice.

Interested in seeing today’s best mortgage rates? Wear This is the best mortgage rate calculator from Money and L&C to show offers that match your home value, mortgage size, term, and fixed rate needs.

If you’re ready to find your next mortgage, why not use L&C’s Online Mortgage Finder? It will search thousands of offers from over 90 different lenders to discover the best deal for you.

> Find your best mortgage deal with This is Money and L&C

However, please note that rates can change quickly, so if you need a mortgage or want to compare rates, speak to L&C as soon as possible so they can help you find the right mortgage for you.

Mortgage service provided by London & Country Mortgages (L&C), which is authorized and regulated by the Financial Conduct Authority (registration number: 143002). The FCA does not regulate most buy-to-let mortgages. Your home or property can be repossessed if you don’t keep up with your mortgage payments.

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