As many as 36,000 additional mortgages could be available for first-time buyers under government reforms being announced today.
Chancellor Rachel Reeves will today reveal how she is cutting ‘financial red tape’ to help boost homeownership and this could mean those stepping onto the housing ladder will be able to borrow more than 4.5 times their salary.
It’s a change set to benefit many first-time buyers who face challenges getting onto the housing ladder because their salary won’t stretch to cover monthly repayments.
And it comes as Nationwide Building Society, one of the UK’s biggest lenders, has announced its popular Helping Hand mortgage for first-time buyers will now be available to those with lower salaries of £30,000.
This is all good news for first-time buyers. But how do the changes impact those getting onto the property ladder and when will they be introduced. Let’s take a look…
Background – more about the Chancellor’s speech
The Chancellor is due to make a speech today at a summit of financial bosses in Leeds, where she will announce the biggest set of reforms to financial regulation in a decade.
The government’s intention is to kick-start economic growth and support more first-time buyers.
There have been reports the government was intending to ‘loosen regulation’ around mortgages and these were reinforced when the regulator, the Financial Conduct Authority (FCA), opened up a review to make mortgages more accessible.
Today’s speech will set out a raft of reforms across the financial sector, including changes which will help give prospective homeowners a ‘leg up’ onto the housing ladder.
What reforms will impact first-time buyers and how?
Changes to rules on first-time buyers’ income
The Chancellor will confirm, thanks to changes enforced by the Bank of England’s regulatory arm, there will be more mortgages available for over 4.5 times a buyer’s income.
Currently, mortgage lenders are limited on the proportion of mortgages they can provide which have loans for more than 4.5 times the buyer’s income.
But, under the changes, this proportion could increase. According to HM Treasury, this could create up to 36,000 additional mortgages for first-time buyers over the first year.
Nationwide’s popular ‘Helping Hand’ mortgage will also become available to more people with lower incomes. This a mortgage support scheme offered by the building society for first-time buyers who need to stretch their incomes to afford to buy a home. The idea is they can borrow up to six times their salary with the scheme.
From Wednesday (16 July) Nationwide has relaxed the income criteria, thanks to new rules introduced by the regulator, so eligible buyers can apply with a £30,000 salary. This compares to a minimum £35,000 salary required previously.
Joint applicants will now require a minimum of £50,000 rather than the £55,000 needed before. HM Treasury said it would support an additional 10,000 first-time buyers each year.
This combined with the government’s announcement means people with lower incomes can now, potentially, access homeownership.
But there’s another change..
A new Mortgage Guarantee Scheme
Rachel Reeves is also set to announce she is making the Mortgage Guarantee Scheme permanent.
This was introduced by the Conservative government back in 2021 to encourage lenders to offer more mortgages at 95% loan-to-value. The government provides a guarantee for the proportion of the loan at 85% to 95% of the property’s value, making it less risky for the lender.
It means those with a 5% deposit have more chance of finding a mortgage to get on or go up the property ladder.
No details have yet been released about how the scheme will work in its new format. However, the news it will feature in today’s speech has been welcomed. Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “The much-anticipated replacement of the Mortgage Guarantee Scheme is part of the government’s plan to boost first-time buyers and will be a permanent policy to improve UK growth.
“Its creation should create a positive sentiment in the market and is designed to encourage more lenders to cater for borrowers with small deposits. As it stands, there are still very few deals on the market aimed at first-time buyers with just a 5% deposit, so any boost to product availability should be welcomed.”
Rental payments to be considered in mortgage applications
In another welcome reform, the Chancellor is expected to confirm lending rules which will take into account the prospective buyer’s record of paying rent as evidence they can afford a mortgage.
Currently, this is not considered as part of the application process, despite the fact many people’s monthly rent is higher than they might potentially pay in monthly mortgage repayments.
Skipton Building Society’s Track Record mortgage is currently the only one which assess rental payment history.
Nick Mendes, mortgage technical manager at John Charcol said: “The recognition that a person’s history of paying rent should be considered when assessing their ability to repay a mortgage is something many in the industry have been calling for over many years.
“If someone has shown, consistently and over time, that they can manage rental payments at a level equal to or even above the mortgage they are applying for, then it stands to reason that this should be considered a reliable indicator of affordability.
“It is encouraging to see this principle now being taken seriously at policy level.”
What’s the verdict on the Chancellor’s mortgage reforms?
As you can see from the comments so far, the changes have been welcomed.
Mendes also said today’s announcement felt like ‘a step in the right direction, and a genuine attempt to challenge that outdated structure.’
But there were concerns these the reforms could go further to tackle the homebuying challenges faced by those stuck in the rental cycle.
Mendes added: “While these changes will make a real difference to many, they do not provide a complete solution to the broader affordability challenges in the housing market. In areas where property prices remain significantly out of step with average incomes, such as London and much of the South East, it is still likely that even those who now qualify for a mortgage will struggle to find a property within reach.
“The regional disparity in house prices means the benefits of these reforms will not be felt evenly across the country, and that remains an important concern.”
But, he added: “If delivered thoughtfully, and backed up by a commitment to regional fairness and practical support, these changes could help open the door for thousands who have been stuck just outside it for far too long.”
