Easing mortgage regulations might potentially boost agreements with first-time homebuyers by around 25%.
Revamped Article:
Hey there! The recent shift in the Bank of England's approach to testing borrowers for mortgages could translate into a significant boost for first-time home buyers kicking off their property journey, according to experts at Savills.
By the look of things, an increase of up to 24% in first-time buyer transactions could occur over the next five years if lending standards keep loosening, as suggested by Savills' analysis.
Following a change in Bank of England guidance in March, lenders are no longer bound to stress test borrowers at the Standard Variable Rate plus 1%. This practice, known as stress testing, which became popular after the 2008 financial crisis, involves testing borrowers with hypothetically higher mortgage rates.
While designed to prevent homeowners from taking on unaffordable loans, some industry experts argued that stress rates were too stringent and kept people from landing mortgages they could comfortably afford.
Several lenders have already adjusted their mortgage requirements in reaction to the Bank of England's change. Halifax eased its stress tests back in April, while Nationwide lowered its stress rates earlier this month.
However, Savills issued a word of caution. The overall impact of easier mortgage access will hinge on how much house prices increase. As Lucian Cook, head of residential research at Savills, put it, "The more the increased borrowing capacity generates price hikes, the smaller the actual impact on transactions will be."
The property giant anticipates that a 24% spike in first-time buyers could trigger a 7.5% increase in house prices on top of existing forecasts. Cook also noted, "The unpredictable economic climate is likely to suppress buyer confidence and reluctance to pile on extra debt in the short term."
"But in the long run, the market will feel the chain reaction of a broader pool of buyers," Cook continued. "This will be a positive for housing delivery, although it probably won't be enough to help the government reach its housebuilding objectives."
This change, while intended to make mortgages more accessible, introduces possible risks such as rising house prices and higher levels of debt for buyers.
Enrichment Factors:- The loosened mortgage lending rules could lead to a reduction in average first-time buyer deposit amounts, dropping from £58,000 to £45,000[1].- Higher house price increases, estimated to reach between 5% and 7.5% over the next five years, are anticipated due to increased demand[1][5].- The ultimate influence on transactions may be tied to how much of the increased borrowing capacity results in higher house prices compared to the expansion of housing supply[4][5].
- The altered mortgage lending guidelines could potentially decrease the average first-time buyer deposit from £58,000 to £45,000, suggesting a spike in investment opportunities in the real-estate sector.
- With increased demand precipitated by a potential 24% surge in first-time buyer transactions over the next five years, house prices might escalate by between 5% and 7.5%, as per Savills' analysis, thereby affecting personal-finance decisions and overall housing-market trends.
- As a larger pool of buyers enters the market due to easier mortgage access, the long-term effect on housing delivery might be significant, contributing to increased real-estate investment opportunities but potentially falling short of government housebuilding objectives.
