First-time buyers could get wider access to mortgages after the Bank of England (BoE) loosened its rules on lending.
Until now, just under 10 per cent of new mortgages issued are for valuations exceeding 4.5 times the income of a borrower.
That is now set to rise to 15 per cent across the industry, with some building societies and banks now able to offer an even higher number of new mortgages at that level.
BoE estimates suggest 36,000 extra mortgages with higher loan-to-income ratios could be handed out each year as a result of the change.
With the government chasing economic growth and Labour pledging to build 1.5 million new homes during this parliament, alterations to rules across both finance and housebuilding have been in focus this year.
Earlier this year, lenders began to relax stress test rules, which limit how much prospective homeowners can borrow, while new 100 per cent mortgages also returned to the market.
Labour has outlined plans to invest £39bn in affordable and social housing across a decade, with a further £1.2bn set aside for investing in young people’s training and apprenticeships across the industry.
But with property prices still rising – even though that growth has slowed in some areas and sellers are having to cut their asking prices to conclude a deal – making it easier for people to get on the housing ladder is seen as a crucial step to both helping the wider economy and improving long-term wealth.
“It will help people who struggle to get on the property ladder because high rents and living costs have made saving for a deposit and meeting mortgage affordability tests extremely challenging,” said Nationwide chief executive Dame Debbie Crosbie.
This week, Nationwide announced new mortgage rates for first-time buyers, including a two-year fixed rate of 4.13 per cent and a five-year fixed rate of 4.19 per cent. Switcher rates now begin from 3.84 per cent, with several lenders battling for business.
The BoE’s base interest rate is currently at 4.25 per cent, with analysts predicting a cut next month. Mortgage products are based on swap rates – future expectations of change in interest rates – which is why they can come in lower than the official Bank rate figure.
Additionally, with the Lifetime ISA potentially set for reform in the coming months, analysis by AJ Bell shows that first-time buyers could be priced out of using the product to purchase their home in 62 regions cross the UK by as soon as 2029, due to frozen thresholds, rising prices and the £450,000 limit for penalty-free use of money in them.
Research by property website Rightmove shows that more first-time buyers are looking to purchase within cities, excluding London, with numbers up 16 per cent on average across the past decade. Buying near the coast is flat compared to 10 years ago, while first-time buyer demand for London is down 7 per cent.
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