Major Shake-Up to Mortgages: What Does It Mean For You?

The Bank of England’s borrowing criteria is set to be relaxed for the first time since 2008, meaning home buyers - including first timers and landlords - may now have more options. 

First time buyers, home movers, landlords & investors looking to add property to portfolios now have more opportunity to do so as the Bank of England’s borrowing criteria has been amended. 

Up to now lenders generally approved circa 15% of mortgage applications with loans having a ceiling value of four times applicant salary, according to the Bank of England’s Policy Committee (FPC) and the Guardian’s Rupert Jones. Lenders had previously adhered to stringent ‘affordability checks’, which the Bank of England has now decided to phase out. 

Instead, affordability will be calculated on the borrower’s income instead of focusing on applicant expenditure, savings and utility costs. Whereas disposable income was previously multiplied four to six times to ascertain applicant affordability, mortgages now will be assessed on the applicant’s take-home pay without rudimentary multiples being applied.

Nationwide’s house sales statistics indicate that the mean price for a property in the UK now sits at £271k (as of the end of July, 2022). This price has increased by more than £25k (from £246k) YOY due to high demand according to Nationwide’s Jack Woodfield. This move is seen as a possible easing of the challenges seen around entering (or maximising) the potential of property ownership.

The relaxation of affordability checks is good news for those struggling to get on the ladder or finance the next step up as the changes are ‘predicted to affect in the region of 20,000 people hoping to become homeowners, claims Sarah Coles, an advisor at Hargreaves Lansdown. There are, however, valid concerns that we could see a repeat of defaulted mortgages a la 2008’s credit crunch. 

This could be good news for landlords looking to extend their portfolios, as Wectory offers the opportunity to access a years’ upfront rental income - providing a lump-sum that is usually used to purchase additional properties and maintain existing ones, without the need for additional borrowing.