The Bank of England has announced plans to relax mortgage lending rules from August 1st. This should make it easier for first-time buyers as currently, borrowers have to show they can afford repayments on their lender's higher variable rate if the interest rates rise by 3%. After consulting lenders and other members of the industry, the Bank's Financial Policy Committee (FPC) has said it will scrap the rule this summer. This comes at a time when rising interest rates and high house prices are already making it challenging for people to get on the property ladder.
The rule was first introduced in 2014 to protect the banking system from high levels of debt following the financial crisis in 2008. The FPC called on lenders to make sure borrowers could still afford their mortgage repayments when their fixed rate deal ended and if interest rates rose.
As a result, lenders had to make sure monthly repayments were still affordable if borrowers were moved on to their standard variable rate and interest rose by 3%.
The FPC also asked lenders to limit the number of mortgages they offered to people borrowing 4.5 times their income to 15% of their total lending.
When the rule was introduced, interest rates were expected to rise to 2.25% in the coming five years. When the FCA first launched its consultation around lifting the rule, it seemed highly unlikely that interest rates would hit this level in the years ahead. As a result, the FCA thought the tet was no longer needed. But since then inflation has soared to a 40 year high of 9%, causing the Bank of England to raise interest rates five consecutive times to 1.25%.
While that is still well down on the 2.25% anticipated when the test was introduced, interest rates are now expected to rise to 3%, or possibly higher, next year.
The average standard variable rate is already just under 5%. If interest rates rise by a further 1.5%, borrowers would have to show they could afford a mortgage rate of 9.5%.
For example, if someone was borrowing £180,000 on a two year fixed rate mortgage with an interest rate of 2.5%, their monthly mortgage repayments would be £815.
But if they would have to prove that they could still afford their mortgage if the interest rate was 9.5% and their repayments were £1,590 a month - almost double the amount they would actually pay.
Such a tough test would exclude many people from taking out a home loan.
While the FCA has not commented on this issue directly, it is thought to be one of the reasons it is withdrawing the rule so quickly after the consultation concluded.
The decision to withdraw the rule is good news for homeowners who have borrowed a relatively high proportion of their salary and would need to remortgage in the next few years.
It is particularly good news for first-time buyers, who typically have lower salaries and smaller deposits, making them more likely to struggle with the test.
A new conservatory will not look like the old glass palaces of old.
Climate change regulations will mean new conservatories will need to be designed to stop our increasingly hot summers turning them into extreme suntraps. That means that glass roofs or walls that take up more than 25% of the property's footprint are out.
The former glass houses will now have solid roofs and walls to improve energy efficiency by keeping them cool in summer and insulated during winter. Forget radiators as these encourage higher temperatures in a confined space and eco-effective curtains and blinds will be the solution for summer heat.
The Bank of England has just announced a hike in interest rates from 0.75% to 1%. This is the highest it has been since 2009.
The average deposit put down by a first-time buyer has soared by more than 50% during the past decade.
The typical person taking their first step on to the property ladder now puts down an average of £45,569 according to professional services platform Stipendium.
The sum represents a 54% jump compared with first-time buyer deposits of 10 years ago, and a 40% increase in the past five years alone.
Not only have house prices risen during the period, but the typical deposit first-time buyers need to have saved in order to secure a mortgage has also increased from 17% of their home's value to 20%
While the combination of soaring house prices and larger deposits makes it harder for first-time buyers to get on to the property ladder, the government has launched a number of schemes during the past 10 years to help people purchase their first home.
WHY IS THIS HAPPENING?
The huge jump in the size of deposits first-time buyers are putting down has largely been driven by increases to house prices.
The research found that while 10 years ago the typical person put down a 17% deposit, the average first-time buyer property cost just £138,973, giving a deposit of £23,684, or £29,684 in today's money after being adjusted for inflation.
But fast-forward 10 years, and the typical first-time buyer property now costs £227, 846.
At the same time, the proportion of a home's value that first-time buyers need to put down in order to qualify for a mortgage has increased from 17% to 20%.
As A result, first-buyers now need to save an average of £45,569 - a massive £21,944 more than 10 years ago.
Uk house prices look set for new record highs in the coming months despite the cost of living squeeze.
Residential property prices have continued soaring in recent months despite 30-year high inflation and a worsening cost-of-living crisis, and the signs are that they will rise further in the coming months in light of the ongoing supply-demand imbalance.
The imbalance between supply and demand will continue to drive prices upwards through the spring despite growing pressures on household finances and rising borrowing costs, with the average property price in England and Wales set to hit a new record high of £389,712 in June 2022, according to the reallymoving House Price Forecast.
The supply crunch, which has seen the volume of properties for sale plummet to record lows, combined with unseasonably strong buyer demand, is preventing sale prices from falling, as would normally be expected when households experience sudden financial pressure.
Marc Da Silva