"An easing back on these would be designed to make mortgages more affordable for first-time buyers, but would also allow lenders to up their volumes in this space."
It is still, of course, very early days in 2025 but you already get the sense that first-time buyers, and the means by which they can get on the housing ladder, are going to figure large within the economy, particularly if the Government gets its way.
We should perhaps not be surprised by that. After all, this Government has pledged to build over 1.5 million new homes in five years, and if it gets anywhere near that then it’s going to need people to be able to afford to buy these properties.
At the same time, we have the overriding Governmental quest for economic growth, and where might that come from?
A big question requiring a big answer, which is why we are led to believe the FCA is being put under pressure to review its lending rules, particularly on stress-testing and the 15% cap on lenders being able to offer loans on properties which cost more than 4.5 times the applicant’s salary.
An easing back on these would be designed to make mortgages more affordable for first-time buyers, but would also allow lenders to up their volumes in this space. Whether now is the right time for such rowing back is a moot point; certainly, the Governor of the Bank of England, Andrew Bailey, was quick to point to the “better outcomes” that such rules have delivered to consumers.
A fair point given we should not forget what acted as the catalyst for this regulatory intervention, namely the Credit Crunch and the distinct lack of such controls in the pre-2008 era.
This time though feels different, I know there is a sense of disquiet at the regulator as well about easing back too much in the quest for activity, and the economic growth that of course comes from more housing transactions. Its Chief Executive, Nikhil Rathi, has also talked about the potential for greater numbers of defaults, and indeed, fraud, which may result from this easing.
He may be right, but also would say this wouldn’t he? And equally isn’t it now time to put the onus back on the lenders, and their Boards to analyse the risks involved?
Given how embedded such stress tests/the cap is in the mortgage lending landscape it might feel like a difficult circle to square, but one can certainly envisage lenders being willing and prepared to move slightly up this particular curve, in order to generate more business. After all, it’s not just first-time buyers who would be impacted by such easing, but all kinds of borrowers who are struggling to meet current affordability rules.
For what it’s worth, I think done the right way and by maintaining the necessary checks and balances, such a move could be beneficial for all. We are 17 years on from the Credit Crunch, and the market has shifted in a key number of areas; we’re not talking about a return to those pre-Crunch days but a recognition that these rules might be deemed somewhat overkill for today’s market.
The important point here is not to throw the baby out of the bath water but to continue to lend responsibly, albeit in potentially bigger volumes and with a slightly less restrictive criteria barrier for borrowers to get over. Frankly, it’s time to allow a bit more competition in the market.
Certainly, first-time buyers would be pleased to have greater options from lenders of this type, and to have the bar set a little lower for them, especially those who might already be paying more rent than their mortgage is likely to be. This would aid those who need higher LTV products in order to purchase.
Talking of which, every month I review the number of products available to first-timers with a 5% deposit, based on Nationwide’s average house price, which this month is £268,213 – slightly down on December but still up 4.1% annually.
The good news is we continue to see positivity in terms of product numbers in this space, up from 248 last month to 252, with the split at 226 fixes and 26 trackers/discounts/variables.
In terms of rates, I am writing this just before the latest MPC announcement on Bank Base Rate (BBR) so while we have seen some movement in terms of pricing, we might anticipate more to come if the MPC does decide to cut again.
In the discount/variable space, we have seen some movement with Newbury cutting its three-year discount from 4.99% to 4.85%, Progressive now have a 4.89% three-year discount, while Loughborough now has a 5.15% three-year product.
For fixes, there has been no change in pricing at all. For five-year fixes we still have Progressive’s 4.65% deal, followed by fellow societies Scottish (4.89%) and Newbury (4.99%). In the two-year space, we still have three societies at the top: Scottish (5.14%), Newbury (5.19%) and Furness (5.19%).
January was something of a topsy-turvy month with swaps rising rapidly, before coming back down. Let’s hope that trend continues – much will depend on the MPC decision but my anticipation is that a combination of lower rates and the potential for regulatory easing in the first-time borrower space, may well see further product growth and, importantly, many more individuals being able to buy a property for the very first time.
