Mortgage rules boost for first-time buyers

FIRST-TIME buyers can borrow nearly £50,000 more after the Bank of England relaxed its mortgage lending rules.

Policymakers have removed a regulation that means banks and building societies can only grant mortgages to borrowers if they can afford payments at three percentage points above the lender’s standard variable rate.

These rules were introduced in the wake of the financial crisis to protect consumers but have been criticised for restricting lending.

Relaxing the rules will allow buyers to take out larger mortgages.

But experts said some high street banks would continue to enforce more rigorous tests, as lenders fear house price falls could leave borrowers in negative equity.

Under the new rules, instead of testing if buyers can afford a rate of SVR plus three percentage points, banks are now only required to test against SVR plus one percentage point, in line with regulations set by the Financial Conduct Authority, the City watchdog.

Andrew Wishart, of Capital Economics, a research firm, said if lenders update their policies in response to the rule change, first-time buyers could be able to borrow mortgages worth 15pc more. For a typical first-time buyer, this would be equivalent to being able to borrow an extra £28,000 on a mortgage. In London, where house prices are much higher, the jump would be an extra £49,000.

But experts said the relaxed rules were unlikely to spark a surge in lending. Although the FCA benchmark is SVR plus one percentage point, banks are likely to test borrowers against SVR plus 1.5 percentage points or higher, to account for the fact that further rate rises are in the pipeline, Mr Wishart said.

Mortgage rates have soared over the past six months, with prices rising at the fastest rate recorded since 1995.