Major mortgage rules shake up could help first time buyers get on property ladder
A MORTGAGE rules shake up could help first time buyers get on property ladder more easily.
The proposed changes come after financial regulators were told by Chancellor Rachel Reeves that they needed to adapt a "pro-growth" agenda.
Reeves told senior staff at the Competition and Markets Authority and Environment Agency this week that they needed to change their mindset on regulation in efforts to boost growth, according to a report first published in The Times.
Ahead of this, Reeves and Prime Minister Keir Starmer also wrote to over a dozen regulators encouraging them to come up with five reforms to support the economy in the coming year.
Since stepping into the role, the head of finance for the UK has faced pressure to help improve economic growth in the country following years of financial instability.
Fresh figures published by the ONS on Thursday also showed that the economy grew by just 0.1% in November, less than expected by economists.
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To help spur on growth, bosses in the industry are said to be thinking about scrapping the £100 limit on contactless payments and allowing banks to set their own limit, letting customers make bigger purchases.
And regulators are also said to be looking at ways to ease mortgage rules to improve the economy and help first time buyers get on the ladder.
One of the ideas reportedly floated was to allow banks to give more loans to buyers with smaller deposits.
Regulators are also examining the rules which limit how much first time buyers can borrow.
Currently, mortgage lenders are only allowed to lend 15% of their loan book to people whose property is worth 4.5 times their annual salary.
These rules have historically been in place to ensure that people borrowing money for a house can afford interest rate increases on their mortgages.
But regulators are also understood to be altering these tests to look at someone's track record of making rental payments rather than just their annual salary.
If green-lit, the measures would act as a major boon to first-time buyers who have been struggling to get on the housing ladder due to years of high inflation and economic downturn.
Figures released by Halifax last week showed the average house price has now risen to £297,166, compared to £287,535 at this time last year.
Meanwhile, stamp duty relief available to first-time buyers since 2022 will end in April 2025.
As a result, a first-time buyer purchasing a property valued at £425,000 will incur a stamp duty charge of £6,250.
Rohit Kohli, director at The Mortgage Stop, said the government must also tackle the root causes of the supply problem.
He explained: "Too many developers are sitting on land with planning permission, and there’s an unacceptable number of vacant properties that could be put to use.
"While these proposals may give buyers more borrowing power, they echo the principles of schemes like Help to Buy, which improved access but didn’t necessarily lead to long-term affordability."
He added: "A balanced approach addressing both supply and demand is needed to have a lasting impact."
WHAT SUPPORT IS OUT THERE FOR FIRST TIME BUYERS?
A number of lenders have launched mortgages which help wanna-be buyers who are struggling to get a deposit.
For example, TSB launched a new "5&5" concessionary mortgage option for its customers.
Under the lender's new scheme, landlords would offer their tenants a 5% discount on the property's market value in exchange for putting down a minimum of 5% deposit.
Concessionary mortgages allow wannabe homeowners to bag a property for less than the market value.
They are usually used by landlords selling a house to their tenants, or someone selling a property to a relative.
A number of lenders offer some variation of this mortgage type including Barclays and Natwest.
Another option is a Lifetime ISA (LISA) was launched in April 2017 and is a savings product which is designed to help people save for either a first home or retirement.
The account is tax-free and anyone aged between 18-39 can open one.
You can save up to £4,000 a year and the government will then add a 25% bonus on top.
If you save the maximum amount between the ages of 18 and 50 you could get as much as £32,000 for free.
You'll also earn tax-free interest on your savings pot, including the added extra from the government.
If you choose to buy a property it must cost less than £450,000 and you must buy it at least 12 months after you make your first payment into the Lifetime Isa.
There are strict withdrawal rules surrounding a LISA that prospective users should be aware of.
For example, you can only make an authorised withdrawal from your LISA to purchase a house or if you are terminally ill.
Anyone who’s opened a LISA for retirement will also be able to access the cash without penalty when they turn 60.
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If you withdraw for any other reason you are slapped with a 25% fine, which is known as an "unauthorised withdrawal" penalty.
You can read all about the scheme by clicking the link here.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa - It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.
Help to Buy equity loan - The Government will lend you up to 20% of the home's value - or 40% in London - after you've put down a 5% deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa - This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.
Shared ownership - Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you're restricted to specific ones.
Mortgage guarantee scheme - The scheme opens to new 95% mortgages from April 19 2021. Applicants can buy their first home with a 5% deposit, it's eligible for homes up to £600,000.