Mortgage criteria: softer mortgage rules will not help London homebuyers

·2 min read

Relaxing mortgage rules could “prop up already inflated house prices” in London and the south east, according to lending experts.

The Bank of England is understood to be considering relaxing lending rules for wannabe homeowners by softening affordability checks as part of a review which concludes next week.

The interest rate stress test – whereby homeowners have to prove they could afford to service their mortgage if interest rates increase – was introduced as part of the Mortgage Market Review in 2013 following the banking collapse.

However, this shift eight years later will do little to help first-time buyers trying to buy in the capital’s expensive property market, brokers claim.

“Having stress tests that reflect the long term low rate environment is sensible. The question is one of timing, however, as this could help to prop up an already inflated housing market. While loosening is welcome it should be approached with caution,” says Andrew Montlake, managing director of the broker Coreco.

“There are two sides to this,” he continues. “Lenders will still have to stick to maximum income multiples so it shouldn’t lead to crazy lending as seen before the Global Financial Crisis. On the other hand it will keep house prices high.”

Softening affordability regulations will not tackle the biggest barrier to homeownership in London and the south east, the deposit. Recent data from Nationwide revealed that it now takes the average first-time buyer almost 16 years to save for a deposit to buy a home in the capital.

“It doesn’t deal with deposit sizes but it [relaxing interest rate stress tests] is a step in the right direction, says Mark Harris, chief executive of SPF Private Clients. “However, any changes in regulation must be done slowly to avoid a boom and bust situation,” he warns.

Savills’ Lawrence Bowles agreed that economic uncertainties such as as the Omicom variant of Covid-19, recession and unemployment are real risks to lenders and therefore any changes must be gradual.

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