Our bespoke UK mortgage market is going through a massive shift. To compensate for that, lenders are relaxing affordability standards. Breaking news, interest rates are going down! This welcome step will bring more first-time buyers into the mortgage market at a time of skyrocketing house prices. According to Moneyfacts, the average new five-year fixed-rate mortgage was priced at 5.18% last Wednesday. That’s a modest drop at least from 5.24% from the start of January.
The average cost of fixed-rate mortgages has been declining over the past few months. Despite interest rates being substantially higher than in previous years, such as the typical 2.84% for a five-year fix in mid-2019, lenders are responding to an evolving market landscape. The UK’s Financial Conduct Authority (FCA) has, for example, expressed concern that lenders inappropriately applying stress testing are limiting access to affordable mortgages. They are calling on these lenders to lower their barriers as interest rates keep going down.
Of all the banks in the UK, Santander seems to have become the most spontaneous leader of this change by being the first lender to loosen its affordability criteria. Santander has made positive changes in the interest of the bulk of their customers who are applying for a mortgage. Now, however, they might be able to borrow £10,000-£35,000 more. This couple of first-time homebuyers don’t just have to find their current home! With a joint income of just under £50,000 they could potentially afford to buy a home at £260,000. In the other example, a family of four, the parents termed as “second-steppers” have a joint income of £63,500. They would be eligible to apply for a five-year fixed-rate Santander mortgage of £305,000 or higher.
Santander isn’t alone in relaxing its affordability stress test. Now, specialist lender Precise has followed suit, signalling that mortgage providers are starting to relax.
“We’re hopeful that more lenders will follow suit … We’re excited to see what lenders are going to be doing over the coming weeks.” – Rachel Geddes, a director at the broker Mortgage Advice Bureau.
To the now and future housing market an exciting sign! According to Nationwide, the typical UK property currently costs £10,488 more than it was a year ago. This surge in housing costs along with current high interest rates create an even more daunting barrier for potential buyers. Yet, a loosening of lending standards might help offset many of these challenges.
While property values have sharply increased, interest rates are significantly higher than recent years. Despite all this, lenders stand prepared to assist Americans in obtaining cost-effective mortgages. That means that a couple on £63,500 joint income are no longer able to get a mortgage. They can borrow at least £210,000 on a two- or three-year fixed-rate term.
The change in lending practices is creating excitement among those looking to buy their first home. Illustrating this is how they have floundered under harsh affordability tests in the past several years.