UK mortgage lenders can now offer first-time buyers loans of up to six or seven times their annual income, according to BBC Business. The shift comes as high living costs make it hard to save for a deposit, interest rates on new mortgages are rising, and the average house price is nearly £300,000, BBC Business reported.
Background: Regulation After the 2008 Crisis
BBC Business reported that reckless mortgage lending was blamed for the financial crisis of 2008, which brought some banks to their knees and saw people lose their homes. In 2014, the business secretary of the time, Vince Cable, said he was appalled that some mortgage providers were lending five times a mortgage applicant's income, suggesting a stable level was up to 3.5 times.
However, house prices have risen significantly since, outstripping wage rises most of the time. So a bigger loan has become the only option for many potential buyers. Regulation limited how much lenders were able to lend: technically, only 15% of their new mortgages could be at higher than 4.5 times loan-to-income. Many of the big lenders played it very safe, meaning they did not get close to the limit, according to BBC Business.
| Measure | Figure |
|---|---|
| Cable's suggested stable lending multiple (2014) | Up to 3.5 times income |
| Lending multiple that Cable said appalled him | 5 times income |
| Regulatory cap: share of new mortgages above 4.5 times loan-to-income | 15% |
| Maximum multiple now offered by some lenders | Up to 6–7 times income |
Relaxed Rules and Bigger Loans
Those rules have been relaxed over the last year, BBC Business reported. Many lenders are offering bigger loans compared with your income, with niche lenders and building societies at the highest end.
David Hollingworth, of mortgage broker L&C, said:
The greater flexibility could mean that first time buyers that felt ownership was still out of reach may find that the amount they can borrow has changed markedly in a relatively short time.
What First-Time Buyers Need
There is still a strict criteria you most likely need to meet as a first-time buyer to be offered a larger mortgage, according to BBC Business. They may include:
- A good credit history with limited credit card debt and loans and no missed payments
- A regular salary, ruling out many who are self-employed
- A salary large enough to qualify for specific mortgages, which varies depending on the borrower and the lender
- An acceptance to borrow at a certain interest rate usually for five or 10 years, rather than two
- Enough savings to offer a deposit, although the options for low-deposit mortgages have increased too
Risks and Broker Warnings
Also, circumstances can change, such as what is on offer when you come to renew or shop around for another mortgage after five years. Lenders may become more picky if the economic outlook takes a turn for the worse, BBC Business reported. Personal circumstances can change too, such as losing a job, having to take time out to care for a loved one, or illness of your own.
Aaron Strutt, of broker Trinity Financial, said the idea of taking a big income stretch is not going to be for everyone. "But it is tempting for many because it gives them the option to get out of renting or living with parents." Strutt added: "Ideally you need to have a cash buffer or a plan in case something happens financially."
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