"The LTI flow cap sticks out like a sore thumb. It acts as a handbrake on today’s mortgage market, stopping credit from reaching those who will benefit from it most."
- Arjan Verbeek, CEO of Perenna
The government is reportedly considering relaxing mortgage affordability rules to boost first-time buyer lending.
According to The Times, financial regulators are looking at allowing lenders greater flexibility to allow “responsible risk-taking” from borrowers.
Among the proposed changes are believed to be reforms to loan-to-income caps and financial stress-testing rules that limit how much first-time buyers can borrow.
Currently, lenders can only allocate 15% of their total mortgage loan book to people borrowing more than 4.5 times their annual salary.
In addition, the government and lenders could look at amending affordability tests to include evidence of previous rental payments rather than simply income.
The Times says lenders are also pushing the Bank of England to "reduce the amount of capital they need to keep in reserve for 90% LTV mortgages in order to open up the market to first-time buyers".
In a meeting with regulators earlier this week, Chancellor Rachel Reeves said: “Every regulator, no matter what sector, has a part to play by tearing down the regulatory barriers that hold back growth. I want to see this mission woven into the very fabric of our regulators through a cultural shift from excessively focusing on risk to helping drive growth.”
Arjan Verbeek, CEO of mortgage lender Perenna, commented: “If the reports are right, we may finally be seeing regulators and government alike wake up to the fact that too much regulation can also damage consumer outcomes, rather than support them – and in doing so, undermine growth. The mortgage market is a case in point.
“The Bank of England should be commended for assessing what changes it could make based on where the market is today. If we want to build a nation of homeowners, it is critical to regularly review and revise regulations that whilst protect the system from risk, stop the market from serving credit-worthy first-time buyers. The LTI flow cap sticks out like a sore thumb. It acts as a handbrake on today’s mortgage market, stopping credit from reaching those who will benefit from it most.
“Lenders can usually only provide above 4.5x loan to income for c.15% of their loan books, meaning the level of high LTV and LTI lending required to tackle the housing affordability crisis simply cannot exist. Without change, many more people will stay renting rather than become homeowners. Amending or removing the LTI to reflect the products in the market like long-term fixes minimises the risks the regulators are concerned with and would be a gigantic leap forward for the hundreds of thousands of frustrated first-time buyers shut out of the market.”
Mark Hollands, head of sales and distribution at Bluestone Mortgages, added: “We welcome the Chancellor’s interest in tackling the challenge of affordability for first-time buyers. For too long, lending rules have been too restrictive, making getting onto and up the property ladder out of reach for many, if they can afford the monthly repayments.
“Our own research found that nearly two fifths (37%) of first-time buyers said affordability is their main barrier to homeownership, while a third (34%) are struggling to raise a large enough deposit. As such, we hope to see measures from the government not only focus on easing affordability to open up the market to thousands more participants, but also increasing support for those with small deposits.
“Looking ahead, we would like to see greater collaboration between the government and the mortgage industry to support the root causes of the housing crisis. This includes easing the affordability pressures that prospective buyers face as well as providing innovative solutions that help buyers get onto the property ladder.”
