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Mortgage shake-up will make it easier for low-income workers to get a loan for a house

About 10% of people either cannot get a mortgage or cannot get the one they want due to strict lending requirements dating back to 2014 which the Bank of England is talking about relaxing.


More Brits will be able to buy houses under plans from the Bank of England to eliminate tough rules barring those on lower incomes from getting on the property ladder.


The bank says that around 6% of people, 30,000 every year, have been forced to take out smaller home loans due to this strict rule.


A further 6% of Brits have been unable to get mortgages at all.


The history is that, before the 2007 financial crash, mortgages were easily obtainable with no deposit needed. Notoriously, some lenders extended 125% of the purchase value to people who would struggle to pay.


That came to an end after the crash when many households were unable to keep making their mortgage repayments and lost their homes.


In response, the Bank of England brought in a rule in 2014 to toughen up rules for mortgage lending by banks.


This rule said anyone applying for a residential mortgage had to be able to afford repayments if mortgage rates rose.


In practice, that meant borrowers had to be able to afford mortgage rates of 3% plus lenders' standard variable rate (SVR)- normally in the region of 4-6%.


So, for example, anyone going to one of the mainstream lenders such as Halifax, one of the biggest lenders, had to be able to afford a mortgage payment of 6.99% a month- 3% plus the lender's SVR of 3.99%.


The rule was brought in to protect buyers from losing their homes and getting into debt if mortgage interest go up, but since 2014 the opposite has happened and home loan rates have been very low.


The upshot is that borrowers were being asked to prove they could afford mortgage rates of 6-9% when their actual mortgage could be as low as 1-2%


The bank is considering removing the rule completely.


Allowing lenders to set their own stress tests and interest rates for home loans will make it easier for first-time buyers to get on to the property ladder as affordability criteria will become more flexible.



Disclaimer:


This article is intended to provide a general understanding of the topic. The contents should not be treated as advice.



Your home may be repossessed if you do not maintain repayments on your mortgage








Author: Aakash Nagrani - Director 

Aakash Nagrani Author
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