First-time buyers can now borrow up to six, and in some cases seven, times their annual income, after a year of regulatory loosening that has quietly redrawn the affordability map. The BBC’s cost of living correspondent Kevin Peachey reported on Monday that a rule change combined with more flexible lender criteria has pushed maximum loan sizes well beyond what was standard even eighteen months ago.
For anyone who has spent the past few years watching deposits fall behind house prices, this matters more than another decimal point on a house price index.
The limits being relaxed date from the aftermath of 2008. Regulation restricted lenders so that only 15 per cent of their new mortgages could exceed 4.5 times a borrower’s income. In practice most of the large banks stayed well inside that cap, treating it as a ceiling to avoid rather than a target to reach.
That caution had a logic behind it. In 2014 the then business secretary Vince Cable said he was appalled that some lenders were offering five times income, arguing that 3.5 times was a stable level. Since then, though, house prices have risen faster than wages for most of the intervening period, and a larger loan has become the only route to ownership for a great many buyers.
Now the constraint has eased. Building societies and specialist lenders are operating at the top of the range, with mainstream lenders following at a distance.
David Hollingworth of mortgage broker L&C told the BBC that “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.”
Aaron Strutt of Trinity Financial was more measured about the appeal of stretching that far. “The idea of taking a big income stretch is not going to be for everyone,” he said, before adding that “it is tempting for many because it gives them the option to get out of renting or living with parents.”
Both points are worth holding together. A larger loan is not a discount. It’s a longer commitment at a higher monthly cost.
Borrowing at six times income is not on general offer. Lenders operating at that end of the market typically want a clean credit history with limited card debt and no missed payments, a regular salary rather than self-employed income, and a salary large enough to clear the minimum income thresholds attached to those specific products. Many also require the borrower to fix for five or ten years rather than two, and a deposit is still needed, though low-deposit options have widened.
Strutt’s caution was practical rather than theoretical. “Ideally you need to have a cash buffer or a plan in case something happens financially,” he said. Jobs end, illness happens, and caring responsibilities arrive without notice. Lenders can also turn fussier at renewal if the economic outlook has soured in the meantime.
Here the arithmetic becomes interesting. The average UK house price is close to £300,000, and much of Norfolk and Suffolk sits below that. A couple on a combined £60,000 who were previously capped near £270,000 could, on a six times multiple, be looking at £360,000. That is not a marginal improvement. It moves them from the entry tier into the family house bracket in a large number of local markets.
In practical terms it opens up the market towns that first-time buyers have been priced towards the edge of. Wymondham, Attleborough and Thetford all offer housing stock in that range, as do parts of Norwich and King’s Lynn. Our property market reports track conditions across 324 towns and villages in the two counties, and the gap between what buyers can borrow and what is actually available varies enormously from one parish to the next.
Larger loans arrive just as the cost of those loans is rising. Mortgage rates have been edging upwards, and buyer demand has cooled with them. Greater borrowing capacity in a market of dearer money is a strange combination: the door widens while the step up gets steeper.
The counterweight is choice. Stock levels across much of Norfolk and Suffolk favour buyers, and a first-time buyer with an agreed larger loan and a five-year fix is a genuinely attractive proposition to a vendor who has been waiting. Chains are shorter at the bottom. Certainty carries a premium.
If you own a two or three bedroom house in a commuter town, your buyer pool has just grown. Not dramatically, and not overnight, because criteria still exclude the self-employed and anyone with a bruised credit file. But the ceiling that kept a slice of interested buyers from reaching your asking price has moved.
That’s a reason to pay closer attention to how a property is presented to a mortgage-dependent buyer. Energy performance, lease length where relevant, and anything a valuer might query all become more consequential when the loan is stretched. A surveyor’s down-valuation bites harder at six times income than at four.
The regulator is still working through a broader review of mortgage rules covering later-life lending and innovation, so this probably isn’t the last adjustment. If the direction of travel holds and borrowing costs eventually turn, the combination could release a good deal of demand that has been sitting on its hands since the spring.
For now the sensible reading is that access has improved while affordability hasn’t. Those are different problems, and only one of them has been addressed.
