Brokers: Homeowners taking bigger mortgages thanks to banks' looser rules
It follows moves from most of the major high street lenders to increase the amount people can borrow in relation to their income - as well as less stringent 'stress tests'. Previously most homeowners were capped at 4.5 times their salary, but now many more can borrow up to 6 times annual earnings. This shift was enabled by a significant change in mortgage borrowing rules , backed by Chancellor Rachel Reeves .
Previously, only 15 per cent of a bank's mortgages could be lent to those borrowing more than 4.5 times their income. This protection was brought in after the financial crisis to prevent home buyers from overstretching themselves. The difference between 4.5 times and 6 times income means a couple on average salaries could able to borrow £112,290 more.
The latest bank to increase the borrowing available is Lloyds Bank, which has set aside an extra £4billion to lend to those borrowing between 4.5 and 5.5 times their salary. Nationwide Building Society has also widened access to its 'Helping Hand' mortgage, which allows some first-time buyers to borrow up to six times their income with deposits as low as 5 per cent.
Lenders have also adjusted their 'stress rates', where they test borrowers' ability to continue to pay their mortgage if the rate increased. HSBC is one of the banks to have done this, and estimates that the average mortgage offer for first time buyers will be £39,000 higher as a result. Most brokers in the HSBC survey (93 per cent) said their clients thought it was 'important' to increase their borrowing power.
High house prices, along with elevated mortgage rates over the past few years, have squeezed affordability for first-time buyers and those wanting to upsize. This has led many to take larger mortgages, often over a longer time period, to meet the extra costs. A separate study by Atom Bank today reported that almost all of those saving into a Lifetime Isa (98 per cent) felt they were 'reliant' on the Government bonus to get on the housing ladder.
The accounts provide a 25 per cent bonus on savings, so someone saving the maximum £4,000 per year would see their pot topped up by £1,000. The HSBC brokers surveyed felt activity in the housing market would improve in the short term. More than six in ten (63 per cent) of brokers expected residential mortgage applications to increase over the next six months, though most of those said this would only be a 'slight' increase.
Commenting on the findings, Chris Pearson, head of intermediary mortgages at HSBC UK, said: 'The recent adjustments to stress rates by lenders are clearly making a positive and tangible impact. 'This Broker Barometer shows that almost eight in ten brokers are seeing an uptick in the amount of lending agreed for their clients.
'This is a crucial development as it directly translates into enhanced buying power and greater accessibility for aspiring homeowners, reflecting a more responsive market.' 'It's also encouraging to see a palpable increase in optimism among mortgage brokers, particularly in relation to the residential market and broader economic confidence.
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