House prices in the UK have risen by over 10% this year and continue to surge. On top of this, strict mortgage lending rules have made it even more challenging for first-time buyers to get onto the property ladder.
In response to a sea of criticism over the strict mortgage lending criteria, the Bank of England has revealed that it may consider softening the rules.
At first, the proposed changes point to a better deal for first-time buyers. However, experts have warned that the downsides of the changes may outweigh the positives.
Here’s what softer mortgage lending rules could mean for house prices in the UK.
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What is meant by ‘softer’ mortgage lending rules?
To access a mortgage in the UK, buyers must meet certain criteria that are dictated by a set of mortgage lending rules. These rules were released in 2014 during a nationwide financial crisis.
The aim of the mortgage lending rules is to ensure that mortgage recipients are able to comfortably pay monthly rates, even in times of price inflation. To be sure of this, current lending rules place an additional 3% interest rate charge on new mortgages.
Mortgage lenders also carry out thorough checks on applicants’ finances and tend to favour buyers who have a more desirable profile.
Mortgage lending rules were introduced to ensure that homeowners could pay their monthly fees even in times of interest rate inflation or drops in income. However, interest rates for mortgages in the UK have remained low for longer than was originally anticipated.
More importantly, the strict rules have made it increasingly difficult for first-time buyers to get on the property ladder. This has created a first-time buyer crisis. As a result, the Bank of England has announced that it will consider softening it’s mortgage lending rules.
Softer rules could mean an end to the additional 3% interest rate and a looser affordability test.
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How will these changes affect house prices?
The Bank of England has proposed mortgage lending rule changes to help first-time buyers access the mortgages they need.
On one hand, softer lending rules will make it easier for prospective buyers to access mortgages. It is thought that looser affordability criteria will open doors for hopeful homeowners who previously wouldn’t have made the cut.
On the other hand, more eligible buyers may not be what the UK property market needs. Some experts have warned that an influx of eligible buyers could cause house prices to soar further. As a result, the UK housing market could enter ‘bubble territory’.
A ‘housing bubble’ refers to a sudden increase in house prices caused by high demand and low supply.
The UK is currently facing a shortage of homes due to supply issues. If more buyers are able to access mortgages, this could increase competition and see UK housing prices surge yet further.
How can you prepare for changes to the mortgage lending rules?
A change to the Bank of England mortgage lending rules could significantly increase the cost of housing in the UK.
For this reason, prospective buyers might want to jump on the property ladder sooner rather than later. This is because a relaxation of the rules could ultimately lead to stronger demand and increased competition. If left too late, prospective homeowners may fall victim to a shortage of homes.
The best way to avoid a possible race for housing is to secure your mortgage as soon as you are able to do so. Our mortgage application mistakes guide could help you to reduce application errors, which would otherwise slow down the mortgage lending process.
Another way to secure your mortgage quickly is to get a head start on the paperwork and checks. The sooner you complete this process, the sooner your application can be accepted.
