Although Labour has long been associated with better rights for renters, it recently showed that it is equally as committed to promoting homeownership. A raft of financial reforms designed to help mortgage borrowers, which will apply across the UK, were announced in July.
Firstly, the Government launched a new Mortgage Guarantee Scheme aimed at purchasers with small deposits – an initiative that extends to Wales and Scotland. The momentum will start with lenders, who will be incentivised to keep offering low-deposit mortgages.
5% mortgages to remain
This will be made possible thanks to Government-backed guarantees that will insure lenders against a portion of potential losses, removing some of the risk associated with high loan-to-value ratios. The result for borrowers should be a continual supply of mortgages that require deposits of between 5% and 9%.
The scheme will be known as Freedom to Buy and is designed to help first-time buyers and existing homeowners who have a smaller value deposit. Unlike other similar schemes, which have been temporary initiatives, Freedom to Buy is proposed to be a permanent offering.
July also saw the Chancellor, Rachel Reeves, announce the relaxation of some mortgage lending rules in a bid to boost homeownership numbers. The first change pertains to an applicant’s wage and how much money they can borrow as a result of their income.
Loan-to-income calculations to relax
Currently, lenders usually offer a mortgage amount that is no more than 4.5 times the borrower’s annual income. This limits the value of a property someone can purchase, based purely on their earning and not on their ability to make repayments through diligent money management.
The Chancellor has, however, listened to recent advice issued by the Bank of England. It recommended that some banks and building societies should be able to offer more high loan-to-income products than they currently do, as this type of lending is presently capped at a set number each year.
A new, high loan-to-income lending limit – which was introduced immediately - should see an increase in mortgages where the loan amount exceeds 4.5 times someone’s wage. The change should create an estimated 36,000 additional mortgages where the lender is more generous with its calculations.
The initiative was quickly adopted by the Nationwide, who revised its ‘Helping Hands’ mortgage product shortly after the announcement. It has made mortgages more accessible to property buyers on lower incomes by dropping its wage thresholds. A first-time buyer can now apply for a mortgage with a £30,000 salary, down from £35,000, while joint applicants can apply with a £50,000 combined salary – down from £55,000.
Rental payments may soon count
Finally, those moving out of rental accommodation to buy their own home should have another reason to cheer very soon. A review of Financial Conduct Authority lending rules is hoped to result in mortgage lenders taking a tenant’s track record of paying rent on time into account during the application process.
It has been recognised that monthly rental payments often exceed mortgage repayments, with an unblemished rental history an excellent indicator of affordability. At present, reliable rental payments count for nothing when a tenant applies for a mortgage.
The ability to purchase a property remains an area of interest for the Government. In July, it was announced that an all-party Housing, Communities and Local Government committee of MPs was scrutinising how to make it easier for renters to become homeowners.
Further reviews announced
Under review will be Government-led initiatives, such as first-time buyer support and stamp duty initiatives, financial products that support home buying, such as special ISAs and mortgages, and assistance schemes including Affordable Homes Programmes and Shared Ownership.
If you need a mortgage to buy your first home, an onward property or a buy-to-let, please contact us. We can introduce you to a mortgage adviser, as well as supply you with a list of currently available properties.
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