The change that may help you get a mortgage as a first-time buyer
Kevin Peachey Cost of living correspondent
If you're working towards buying your first home you might feel like everything is stacked against you - but recent changes could help you get a mortgage.
It hard to save for a deposit when the cost of living is so high, the average house price is nearly £300,000 and interest rates on new mortgages are rising.
However, a rule change and more flexible lending mean first-time buyers can now borrow up to six, or at the most, seven times what you earn in a year.
This means mortgages will be within reach for more people but it is a shift that comes with some risk so here's what you need to know.
The background
Reckless mortgage lending was blamed for the financial crisis of 2008, which brought some banks to their knees and saw people lose their homes.
In 2014, the business secretary of the time, Vince Cable, said he was appalled that some mortgage providers were lending five times a mortgage applicant's income, suggesting a stable level was up to 3.5 times.
But house prices have risen significantly since, outstripping wage rises most of the time. So a bigger loan has become the only option for many potential buyers.
Regulation limited how much lenders were able to lend - technically, only 15% of their new mortgages could be at higher than 4.5 times loan-to-income. Many of the big lenders played it very safe meaning they didn't get close to the limit.
The change
But those rules have been relaxed over the last year. Many lenders are offering bigger loans compared with your income, with niche lenders and building societies at the highest end.
"The greater flexibility could mean that first time buyers that felt ownership was still out of reach may find that the amount they can borrow has changed markedly in a relatively short time," says David Hollingworth, of mortgage broker L&C.
The idea of taking a big income stretch is not going to be for everyone, says Aaron Strutt, of broker Trinity Financial.
"But it is tempting for many because it gives them the option to get out of renting or living with parents," he adds.
What you need
There is still a strict criteria you most likely need to meet as a first-time buyer to be offered a larger mortgage. They may include:
- A good credit history with limited credit card debt and loans and no missed payments
- A regular salary, ruling out many who are self-employed
- A salary large enough to qualify for specific mortgages, which varies depending on the borrower and the lender
- An acceptance to borrow at a certain interest rate usually for five or 10 years, rather than two
- Enough savings to offer a deposit, although the options for low-deposit mortgages have increased too
Also, circumstances can change, such as what is on offer when you come to renew or shop around for another mortgage after five years. Lenders may become more picky if the economic outlook takes a turn for the worse.
Personal circumstances can change too, such as losing a job, having to take time out to care for a loved one, or illness of your own.
"Ideally you need to have a cash buffer or a plan in case something happens financially," says Strutt.
