Previously those taking out a mortgage for the first time would be able to borrow up to 4.5 times their income. But yesterday the lenders, which both operate under the Lloyds Banking Group umbrella, changed their loan-to-income (LTI) ratio to 5.5. It means first-time buyers can borrow 5.5 times their income.
To be eligible the first-time buyers must have a total employed household income of £50,000 or more and have at least a 10% deposit.
It does not apply for those using Shared Ownership or Shared Equity schemes.
Halifax said, based on an employed household income of £50,000, it would increase the maximum loan available from approximately £224,500 to around £275,000.
John Fraser-Tucker, head of mortgages at Mojo Mortgages said: “This may come as good news for first-time buyers as it potentially opens up opportunities for homeownership across the UK.
“Our analysis of the UK’s top 80 most populous cities reveals a significant shift in affordability. Now, the number of affordable cities for solo home buyers on an average wage has jumped from 4% to 21%, while couples on an average salary can consider an average-priced property in 86% of these cities.
“However, it’s important to be aware of the risk too. Whilst being able to borrow more may allow more aspiring first-time buyers to purchase their first home, higher borrowing limits come with higher monthly mortgage repayments.
“And given that mortgage rates are still significantly higher than they were a few years ago, it’s key that first-time buyers ensure that their payments are manageable.”
However, Laith Khalaf, head of investment analysis at AJ Bell, said he thought Lloyds’ new borrowing limits were sensible as they were only available to those with healthy deposits.
He said: “Looser lending requirements might start to ring alarm bells for those who remember the build up to the financial crisis, when unaffordable borrowing ended up pushing banks, homebuyers and everyone else into a deep dark pit from which we are still emerging.
“Lloyds will at least be requiring a minimum 10% deposit for this mortgage product, which provides some security for the bank, and a bit of a buffer for homebuyers from falling into negative equity.”
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