Huge boost for buyers as another major lender makes change to mortgage rules to allow people to borrow up to £38k MORE
A MAJOR mortgage lender has made a big change to its rules that will help more people get on the housing ladder.
Halifax has made changes to its affordability rules that means buyers will be able to borrow more.
UK house prices surged to a new record high this month, meaning first-time buyers are having to stump up even more money to get on the ladder.
The average asking price for a home hit £377,182 in April, according to the latest data from Rightmove.
But more mortgage lenders are moving to help first-time buyers with schemes to make buying a home more affordable.
At the same time, two major banks have cut their mortgage rates below 4% in another boost for buyers.
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Halifax has now reduced the stress rates used in its standard affordability calculation and on its five-year fixed mortgages by 0.5%.
Stress tests are used by mortgage lenders to check whether buyers could still afford the loan if interest rates were to increase by a certain amount.
If the stress rates are reduced, buyers and home movers will be able to borrow more than they can currently.
Halifax said the change means customers could see a rise of about 15% to the maximum loan available.
In practice, a typical household of two adults with two children and a household income of £75,000 could borrow £38,000 more.
How much extra you can borrow will depend on factors like your income.
Halifax has also reduced the minimum stress rate for two-year fixed like-for-like remortgages.
It's the latest lender to ease stress tests and improve affordability for first-time buyers.
Santander was the first big name to make the move last month, reducing all of its stress test rates by 0.75% and bringing them to the lowest level since 2022.
It said borrowers would be able to take out loans between £10,000 and £35,000 more than previously.
Brokers have reacted positively to the news and said now is a great time for first-time buyers.
Ranald Mitchell, director at Charwin Mortgages, told Newspage: "With 90% and 95% mortgages hitting a 17-year high, it's clear the market is waking up to the needs of first-time buyers with the latest move from Halifax being a prime example.
"Lenders are innovating, competition is booming and homeownership is back on the cards for those who thought it was out of reach.
"We're entering a new era of mortgage lending and it's about time."
Meanwhile Sean Horton, managing director at Respect Capital, said the increased borrowing capacity means fewer first-time buyers will have to compromise on location or property size.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you're remortgaging and your loan-to-value ratio (LTV) has changed, you'll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home's value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you're nearing the end of a fixed deal soon it's worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal - but compare the costs first.
To find the best deal use a mortgage comparison tool to see what's available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You'll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee - sometimes more than £1,000 - to the cost of the mortgage, but be aware that means you'll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statements.
Lenders start price war on mortgage rates
Brokers also told The Sun last week that now is an "ideal time" to be a first-time buyer thanks to mortgage rates dropping.
Major lenders Santander and HSBC are among the banks that have cut fixed mortgage rates to below 4%.
Santander has reduced the two, three, and five-year fixed rates in its home mover range by up to 0.13%.
The two-year fix is now set at 3.97% and the three-year fix at 3.99%.
For first-time buyers, all two, three and five-year fixed rates between 60-95% LTV will be reduced by up to 0.17%.
HSBC today reduced rates on almost all of its mortgages by up to 0.24%.
It also launched a new sub-4% five-year fixed rate at 60% LTV for Premier customers.
This follows Barclays and Coventry Building Society cutting their rates to below 4% last week, in what appeared to be the start of a mortgage price war.
Why are mortgage rates dropping?
Consumer reporter Emily Mee explains how global economic turmoil is contributing to lower mortgage rates..
Mortgage rates in the UK have been dropping after US President Donald Trump imposed huge tariffs on dozens of countries in early April.
The move sent stocks plummeting and created uncertainty for economies across the globe - but an unexpected side effect of this is a boost for British home buyers.
That's because the turmoil has led to markets now expecting more Bank of England base rate cuts.
The Bank of England's base rate helps to influence the rates set by mortgage lenders.
Markets had priced in two base rate cuts this year, but they're now expecting the Bank will need to cut rates four times to avoid an economic downturn caused by the global uncertainty.
Nicholas Mendes, mortgage technical manager at John Charcol, said if this happens we can expect the base rate to fall from 4.5% to 3.5% this year.
Things began to look uncertain again after Mr Trump announced a 90-day pause on the tariffs.
This could have led to lenders holding back and waiting to see what happens before slashing rates.
But several ended up moving to slash rates to below 4% regardless.
Brokers will now be keeping an eye on the swap markets.
That's because lenders use swap rates to determine how they should price their mortgage rates.
What schemes are there to help first-time buyers?
Several lenders currently have schemes that are also aimed at helping first-time buyers.
Ben Perks, managing director at Orchard Financial Advisers, said mortgages "have never been friendlier".
"There are products available now for people with low deposits, poor credit and those nearing retirement," he said.
"The bottom line is, lenders are really keen to lend and they're looking at more ways to do so. If they continue to innovate, the future is bright for borrowers."
For example, Skipton Building Society has a zero-deposit mortgage - the first to launch in the UK since 2008.
It's aimed at renters who have struggled to save a deposit, although those hoping to get this mortgage offer can only borrow the equivalent of or less than what they spend on rent each month.
Accord has a mortgage that only needs a £5,000 deposit on properties valued up to £500,000.
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It was recently extended to include those wanting to buy a flat.
Plus, Nationwide's Helping Hand scheme allows first-time buyers to borrow up to six times their income when taking a five or ten-year fixed rate up to 95% loan-to-value.