More innovation is needed to help people buy their first home, but proposals to loosen lending rules must avoid lenders suddenly changing their criteria, a market analyst said.
Rachel Springall, finance expert at Moneyfacts, said first-time buyers were the “lifeblood” of the mortgage market but faced an “excruciating situation” securing a mortgage amid a shortage of affordable housing.
However, she said it was up for debate whether lending rules should be loosened to encourage growth, as this could pose challenges to lenders who may want to leave a buffer so as not to exceed the 15% share of new lending that is allowed above four-and-a-half times income.
Springall said: “Those that do may have no choice but to change their requirements or withdraw deals from sale.”
She said Nationwide proved this by increasing the minimum income requirement for its Helping Hand mortgage to £40,000 to remain within regulatory requirements. The criteria for this mortgage were changed last year to allow first-time buyers to borrow up to six times their income.
“Clearly there are desires for loosening LTI rules, but this must be executed carefully to ensure borrowers don’t set themselves up for a fall later down the line and lenders don’t have to suddenly change their rules overnight,” Springall added.
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She also said a drop in house prices would be a “disaster for borrowers” with little equity at higher loan-to-value (LTV) tiers.
More innovation can be done
Springall said that while there were government schemes to help people buy their first home, “there is so much more room for improvement when it comes to product innovation from lenders”.
She said any innovation that had happened “should be celebrated”, naming Skipton Building Society’s Track Record mortgage, which lends at 100% LTV to people with a rental payment history.
This week, Barclays also introduced a Mortgage Boost product allowing borrowers to add another person to the mortgage application to increase the amount they can borrow. The person will be legally responsible for the mortgage but will not own the property or be named on title deeds.
According to Moneyfacts data, there are currently around 400 deals available at 95-100% LTV.
