A relaxation of mortgage guidance from the Bank of England this March means lenders no longer have to apply very rigorous tests to check their customers can afford the mortgages they are lent, which means some can borrow more money.
But experts suggest that the changes could come with some potentially negative consequences for first-time buyers too.
Following a change in Bank of England guidance in March, lenders are no longer required to stress test borrowers at the standard variable rate plus 1 per cent if borrowers take on a mortgage fix of less than five years.
Broker Nick Mendes of John Charcol said many lenders had already started easing their approach after the Bank withdrew the formal affordability test last year, but said the most recent change could still give them more flexibility to stretch affordability.
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At the same time, it acknowledges some of the extra capacity to borrow money could feed through to higher house prices.
Emma Fildes, property adviser at Brick Weaver, said areas that are currently deemed still affordable are likely to be hit by higher house prices.
“This will only exacerbate this further and maintain the status quo in less affordable locations, where prices will tick along till further rate cuts contribute to their growth too.”
But could it make it harder for some?
Although house prices are the highest they have been for a while, Mendes said, “If people can borrow more, they can offer more, and sellers will adjust their expectations accordingly”.
In this scenario the number of first-time buyers may rise, but by a smaller rate.
Mendes explains that lower earners or those with less stable financial situations could find the rule changes pose problems.
Speaking to The i Paper, Mendes said: “We could see the biggest price impacts in areas where affordability was already tight, but demand remains strong, such as parts of London, the South East, and more competitive urban markets.
“So, while this rule change might help some borrowers, especially those who were just short of affordability thresholds, it could also widen the gap between those who can stretch and those who cannot. For first-time buyers already struggling with deposits and high living costs, that is not necessarily good news.”
She explained these buyers could be left in “negative equity” – a situation whereby their home is worth less than the amount they have still have outstanding on their mortgage.
If a sale cannot provide this money, the seller has to repay the bank from their own pocket.
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