First-time buyers are set to see an “instant impact” from the drive to kickstart economic growth, Chancellor Rachel Reeves is expected to say.
More mortgages will be available at more than 4.5 times a buyer’s income following recent Bank of England recommendations that some lenders can offer more high loan-to-income mortgages if they choose to.
This will create up to 36,000 additional mortgages for first-time buyers over the first year, the Government said.
Britain’s biggest building society – Nationwide – announced last week that it is aiming to increase its high loan-to-income lending limit.
From Wednesday, eligible first-time buyers can apply for Nationwide’s Helping Hand mortgage with a £30,000 salary, down from £35,000, and joint applicants with a £50,000 combined salary – down from £55,000.
It is estimated this will support an additional 10,000 first-time buyers each year.
The changes will sit alongside the creation of a permanent mortgage guarantee scheme, delivering on a manifesto commitment, and a review of Financial Conduct Authority (FCA) lending rules that could allow prospective buyers’ records of paying rent on time to be used to show they can afford mortgage repayments.
Reforms will be outlined in Leeds ahead of Ms Reeves’s Mansion House speech on Tuesday evening.
Speaking in the City of London, the Chancellor is expected to say: “I welcome the recent changes the (Bank of England) Financial Policy Committee has announced to the loan-to-income limit on mortgage lending, which the PRA (Prudential Regulation Authority) and FCA are implementing immediately.
“With an instant impact for consumers, such as Nationwide offering its Helping Hand mortgage to more first-time buyers – supporting an additional 10,000 each year.”
Ms Reeves is expected to add: “Today, I have placed financial services at the heart of the Government’s growth mission.
“Recognising that Britain cannot succeed and meet its growth ambitions without a financial services sector that is fighting fit and thriving.
“And I have been clear on the benefits that that will drive.
“With a ripple effect that will drive investment in all sectors of our economy and put pounds in the pockets of working people.”
Nicholas Mendes, mortgage technical manager at broker John Charcol, said: “The decision to widen access to Nationwide’s Helping Hand mortgage by lowering the income thresholds will offer an immediate and practical benefit to a group of people who have often found themselves just on the wrong side of affordability criteria.
“For someone earning £30,000 on their own, or couples on a combined income of £50,000, this change could be the difference between continuing to rent and finally being able to move into a home of their own.
“It acknowledges the gap between headline figures and real life, and it shows a willingness to make the system better reflect the pressures people are actually under.
“It will also bring particular value to those in stable, lower-paid roles that are so essential to society but are often overlooked by traditional lending models.
“People working in care, education, retail, and public service are typically in long-term employment and manage their finances carefully, yet they are the very people who have found the doors to homeownership closed to them.
“This reform suggests that financial discipline is being recognised more broadly than by salary alone, and that is a very welcome shift.
“Equally, the recognition that a person’s history of paying rent should be considered when assessing their ability to repay a mortgage is something many in the industry have been calling for over many years.
“If someone has shown, consistently and over time, that they can manage rental payments at a level equal to or even above the mortgage they are applying for, then it stands to reason that this should be considered a reliable indicator of affordability.”
Paula Higgins, chief executive of the HomeOwners Alliance, said the Government should “turn its attention to fixing the Lifetime Isa (Lisa)”.
She said: “Right now, anyone forced to withdraw their savings early faces an unfair penalty.”
Ms Higgins added: “And the £450,000 property price cap hasn’t moved since Lisas launched in 2017, despite soaring house prices, particularly in the South East.
“Reforming Lisas would make a real, practical difference to those trying to get on the ladder.”
Henry Jordan, Nationwide’s director of home said: “Our changes mean more people, particularly those on lower incomes, could become eligible for a mortgage.
“We also hope our commitment to further lending provides a boost to the UK’s housebuilding ambitions as well as encouraging other lenders to increase support for those looking for a home of their own.”
