Zoopla's Richard Donnell reacts to the news that mortgage rules could be eased
In response to the news that the rules around mortgages could be eased in order to boost lending, Richard Donnell, Executive Director at Zoopla, comments:
“Mortgage regulations introduced in 2015 to stop households taking on too much debt while mortgage rates were low stopped boom and bust for house prices as mortgage rates increased over 2022 and 2023. For first-time buyers has come at a higher cost. The challenge of buying homes is greatest in Southern England where house prices are higher.
“The average income to rent a home and buy a typical first-time buyer property with an 80 per cent mortgage is broadly aligned across the country. However, banks assess whether a borrower can pay a higher stressed rate which averages at around eight per cent. Borrowers have to prove they can afford this higher rate to get the mortgage which can be frustrating for those who have paid rent for many years.
“The difficulty of passing this stress rate is less of a challenge outside southern England as prices are lower. However, the income to buy in Southern England is much higher which forces home buyers to put down more equity to buy. In London, first-time buyers have been putting down average deposits of £140,000 to buy homes.
The income required to rent and buy a typical FTB property by region and actual income/deposit paid
“Mortgage regulations also limit the proportion of lending at higher loan to incomes while banks have to hold more capital to protect them against riskier higher loan-to-value loans.
“The stress rate is currently the biggest hurdle facing buyers. Some lenders are already innovating in this area to try and support home buyers.
“Loosening these regulations would support home buyers and push up home values but there will be a tension between Government, policymakers and regulators on how far any changes go. Finding the balance is not easy, especially when compounded by the wise north-south divide in affordability across Britain."