Boost for first-time buyers as new rules come in to make it easier to get a bigger mortgage
Mortgage lenders are to give added flexibility to lend more to borrowers, thanks to changes approved by financial watchdogs.
Currently, the number of new mortgage loans where buyers can borrow 4.5 times their salary or more is capped at 15% of lenders' total mortgages per year.
But from this Friday, July 11, only larger mortgage lenders that issue over £150million in residential mortgage loans annually will be subject to the rule.
The threshold was previously £100million, meaning people who wish to borrow up to 4.5 times their salary to buy a home will now have a better chance of being able to borrow from smaller lenders.
The number of lenders exempt from the cap is expected to rise to around 80 from Friday, up from 70.
Mortgage experts have suggested that the new rules could benefit younger and first-time buyers, who tend to have a higher loan-to-income ratio.
Aaron Strutt, of broker Trinity Financial, told The Sun there is "no doubt" that the new rules will "take some pressure off smaller lenders".
"These income stretch mortgages often make the difference between someone buying a house or a flat, or a property in a nicer area.
"It tends to be younger people borrowing over five times their salary to get on the property ladder," he added.
"At the moment, borrowers really need to do their homework to get the most generous loan sizes at the most competitively priced rates."
The cap, known as the loan-to-income flow limit, has been in place since 2014, with changes to the rules announced by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) this week.
5 things to check before applying for a mortgage
It comes after the Bank of England 's Financial Policy Committee recommended a change to the rules last November, saying the £100million cap had not kept pace with the UK's economic growth.
A joint statement from the FCA and PRA read: 'The updated recommendation addresses the impact of inadvertent regulatory tightening due to growth in the UK economy since the threshold was first implemented.
"It increases the value of residential mortgage lending that small lenders can extend before becoming subject to the LTI flow limit, thereby contributing to the regulators' secondary objectives on competition, and therefore competitiveness and growth.'
However, some experts warned against the mortgage lending landscape returning to the 'Wild West' seen during the financial crisis.
Emma Jones, of Whenthebanksaysno.co.uk, said: "Affordability is an ongoing issue for many prospective buyers so it's unsurprising that we have reached this point.
"However, we have to be careful that we do not revert to the Wild West that was the mortgage world in the years leading up to the Global Financial Crisis.
'More loans at higher loan-to-income levels will be welcomed by borrowers but it should not come at the cost of putting people at risk.'
Which lenders are offering help to first-time buyers?
David Hollingworth of L&C Mortgages points out that while the new rules will only benefit smaller lenders, some major banks and building societies are offering more help to first-time buyers.
"Many of the bigger lenders have also looked at how they can better support first-time buyers by lending more in the right circumstances," he said.
Nationwide, for example, offers Helping Hand mortgages to support those who don't think they can borrow enough to afford their first home.
The scheme allows eligible first-time buyers to borrow up to six times their income with either a five or 10-year fixed rate mortgage.
Halifax offers a similar scheme with its First Time Buyer Boost, which allows first-time buyers to borrow 5.5 times their salary.
How to get the best deal on a mortgage
There are different factors that go into getting the best mortgage rate. Chris Sykes, technical director at broker Private Finance explains what you need to know.
Bigger deposit
The larger the deposit you have the lower the rates you'll have access to.
The different deposit tiers offered by lenders are generally 0-1% deposit, 5%, 10%, 15%, then generally it skips to 25% and finally cash or equity of 40% or more.
There are some exceptions in between but these are usually the bands.
Lenders then set different rates for each of these tiers, rather than having one rate for a 12% deposit and another for 14%, for example.
With a deposit above 40% there is usually no price fluctuation, which means you'd get the same rate with a 50% deposit to a 40% deposit.
Keep your credit score healthy
A better credit score doesn't necessarily mean more competitive deals, but a negative credit could mean worse deals.
For example, there may be some people with not a lot of credit as they've never had a credit card, or loan, will get the exact some deal as someone who has more credit history and a better credit score.
However, a bad credit history or score starts to limit your lenders and means you may need to move off high street to a more specialist lender which tends to offer higher rates.
If you have poor credit, look for easy ways to improve it.
Look six months before your fix ends
It's best to look at deals six months before a current rate ends. This might be to just have a chat with a broker and get things moving.
It might be that you can get a deal lined up and locked in that protects against movements in interest rates - for example if rates were to go up over the following six months. And you can also then improve the rate within that six months if rates were to go down.
How to find a good broker
A good mortgage broker is invaluable for navigating the options available to you.
The best way to find a good adviser is through personal recommendations, everyone has a friend or family member who will have recently bought or refinanced – ask them who they used and if they were happy with the service.
You can also lookup reviews of that person online to find other customer experiences too. Unbiased.co.uk is one place where people can offer their reviews.
Sort your paperwork
IF you are looking to buy or remortgage, contact a broker nice and early, as they can then guide you through what the expectations are from lenders.
This gives you plenty of time to make sure your accounts are up to date if you're self-employed and you can see if it is worth filing tax returns early.
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