The chancellor Rachel Reeves is said to be considering proposals from the Financial Conduct Authority (FCA) to simplify mortgage lending rules with a view to making it easier for homebuyers to get a foot on the housing ladder.
The City regulator has outlined plans to boost economic growth and home ownership by reviewing current lending restrictions, which were tightened after the 2008 financial crisis.
The move comes as inflation dropped to 2.5% last month, increasing the chances of a potential interest rate cut that could make mortgages more affordable.
The FCA’s proposals include reviewing how much first-time buyers can borrow and potentially issuing more loans to customers with smaller deposits.
The regulator said it would work with the government to remove “overlapping standards” such as the Mortgage Charter, which many lenders signed up to during the higher rate environment.
The FCA wants to show it supports Labour’s goal of boosting economic growth, but still ensures that lending practices remain responsible.
Currently, banks can only lend 15% of their total mortgage loans to people who are borrowing more than 4.5 times their yearly salary.
The Bank of England previously scrapped rules requiring lenders to check if homeowners could afford mortgage payments at higher interest rates in 2022.
Matt Smith, mortgage expert at Rightmove, welcomed the potential changes.
He said: “It is really encouraging that the market regulators are now considering what a review of mortgage affordability could look like. Regulatory change is what we’ve been calling for, as that is what is needed to truly impact home mover affordability, particularly for first-time buyers.”
Research by Alexander Hall has revealed that despite the reduction in interest rates seen during the closing stages of last year, the average monthly cost of a mortgage has increased by 8.1% year on year.
Alexander Hall looked at the average cost of a mortgage for homebuyers in the current market based on a 25 year mortgage term and an 80% loan to value on the current average house price and how the cost of climbing the ladder has increased versus this time last year.
The research shows that today, the average mortgage rate stands at 4.3%, up from 4.03% in January 2024.
The average cost of a home has also increased by 5.1% since January of last year, now standing at £292,059.
This means that, for the average homebuyer, a mortgage loan of £233,657 is required after placing a 20% deposit of £58,412.
With both the cost of a home and the average mortgage rate having climbed over the last year, it’s no surprise that the monthly cost of a mortgage has also increased.
Today, the average buyer making a full mortgage repayment can expect to pay £1,272 per month – an increase of 8.1% or £95 per month.
This means that over the course of a year, today’s homebuyers will be £1,142 worse off compared to those who purchased this time last year.
Stephanie Daley, director of partnerships at Alexander Hall commented: “A greater degree of stability returned to the property market in 2024 and we certainly saw a settling of the landscape with respect to the mortgage market.
“However, despite two reductions to the base rate, we haven’t seen mortgage rates follow suit and, in fact, the monthly cost of a mortgage today sits higher than it did this time last year.
“This is an important factor for homebuyers to be aware of, particularly now that many will be acting with haste in hopes of beating the stamp duty deadline which expires on the 1st April this year.
“It’s always best to seek the advice of an expert mortgage advisor when looking to buy in any market conditions, as this will ensure you secure the very best mortgage available to you based on your financial position within the market.”
Read the orginal article: https://propertyindustryeye.com/rachel-reeves-considers-easing-lending-rules-as-homebuyers-face-higher-mortgage-costs/
