This will be consulted on next year and is expected to exist alongside current lending restrictions such as the cap on the proportion of high loan to income loans.
So this week, Mortgage Solutions is asking: How impactful will changes to affordability rules be on mortgage lending?
Lenders are still going to have their own affordability caps, even if the Bank of England makes changes.
And they’re still going to have their other measures that will apply.
When the new rules come into place and we can push the figures into affordability calculators, then we will realise what difference it might make. Whether people will get much more generous mortgages or only slightly more remains to be seen.
There are people who get 5.5 or six times their salary already.
We’ve seen limits on the ratio of loan to income lending have an impact before. A year or two ago a major bank hit their limit and had to stop lending at 5.5 times salary, even for people who had an offer and were due to complete.
Lenders will have watched the market completely collapse in the past so they will not start providing massively more generous mortgages that could cause them trouble. Some lenders are already more generous than others, so it will give them more freedom if they want it. But for the most part, a lot of mortgages are enough as they give borrowers 5.5 or six times their income.
It will give them some wiggle room potentially.
A lot of people still have other financial commitments that will be taken into consideration so it may not make much of a difference for many borrowers.
For most people, the issue is the deposit. Especially in London, for example, five per cent is still a considerable amount and that’s before stamp duty or legal fees.
It will help some people, but banks won’t suddenly start giving out crazy mortgage amounts because of what has happened before.
I think it could push house prices up further, relax criteria and enable more people to buy.
As long as there are not enough homes that is what will happen. It would be a positive thing if there were enough properties.
All these things stimulate the market, but does the market actually need stimulating? It’s the deposit that will affect borrowers more than anything and this could exacerbate that further.
What could happen is people will have more to spend because they have larger loans and they will prop the market up.
But also, the banks need to lend. They need to get rid of the cash they have because if they don’t lend, they can’t pay the interest rates on deposits.
This is more to help the banks lend money than it is to help the economy out. Because if they relax the rules then the banks can lend. So, I have a feeling it is more about that.
On a positive note, the changes mean that more people who would have be declined previously might go through.
It’s all in the detail and will depend on how many banks will have an appetite to lend in that way, because not all of them will. Existing rules and parameters will also help to curb any irresponsibility.
It won’t be as simple as computer says ‘yes’ or ‘no’. Instead, it will help banks to use their discretion. So banks will use the affordability changes along with their discretion, maybe in the form of manual underwriting.
But I don’t think it will be abused.
I have mixed views on it. As long as it’s done in a sensible manner.
A lot of it will come down to advisers giving the right advice and making sure a mortgage is affordable for the client. We as advisers will still conduct a full fact find, look at expenditure and compare it to what clients have left. A lot of the responsibility will fall on advisers.
Moving forward, taking into account what interest rates may be, we will have to factor that in too.
It will also be up to lenders to make sure it’s responsible, and that will restrict clients from borrowing endless amounts of money.
It will help a number of clients, including some I have seen this year where they just couldn’t borrow enough because they fell only slightly outside of affordability rules.
However, the actual deposit is still the biggest barrier for most clients. They can afford the mortgage payments, especially those who are renting as it will often be lower than their rent.
The key thing is making sure lenders don’t open the floodgates, and as advisers we remain responsible to make sure sensible lending is carried out.
I hope that existing rules will keep things in check. As an industry we will all come together to ensure it’s still responsible and affordable.
For clients who may want to go direct to lender for their mortgage, this will only make it more crucial for them to go to a broker who can look at the options available and take a good view on what they can borrow.
It will be interesting to see what actual changes are made.
I think this is a very positive change. This will undoubtedly help first-time buyers on to the property ladder.
Several times a week, I have conversations with clients who are currently renting and are told they can borrow four to five times their salary. I then tell them how much their mortgage would cost per month and it is always £200-£300 a month less than they currently pay on their rent.
It must be infuriating for them to be told they can’t afford a mortgage when they’re paying more in rent for a property they don’t own.
No one knows better than the applicants what is affordable for them.
However, there would be a worry that if rates rise, the remortgage in the future may be less affordable. But as long as we make them aware of the risks, it is ultimately for the client to decide if the risk makes sense.