Hundreds of thousands of homebuyers could potentially benefit from increase in mortgage income multiples: FCA boss
Tags: Residential mortgages
Quick Summary
Financial Conduct Authority chief Nikhil Rathi said that recent easing of mortgage affordability rules could help tens of thousands, or even hundreds of thousands, of homebuyers across the UK. He explained that changes to lending criteria have expanded how much borrowers can access compared to tighter post-2008 rules, potentially increasing borrowing capacity and supporting more buyers into the market. While the relaxed rules may bring some increased risk if interest rates rise, Mr Rathi highlighted benefits included increased access to homeownership and more mortgage availability for those previously priced out. These shifts suggest that more borrowers could qualify for larger mortgages than under previous affordability restrictions. More lenders are offering 5.5, 6 and 6.5 times salary mortgages to first-time buyers and borrowers in general.
Financial Conduct Authority (FCA) chief executive Nikhil Rathi has said that looser mortgage rules could lead to “tens of thousands and potentially hundreds of thousands” of borrowers benefiting over the course of parliament.
Mr Rathi (pictured above being interviewed on the BBC) pointed out that the reforms led to a huge increase in first-time buyers last year, and he expects recent mortgage affordability improvements to improve market conditions now that the lending rules have "flexed". He pointed out that many borrowers may not have been able to buy a home before the rules were eased, and that they have, in part, been changed after communications with the Labour government.
Speaking on the Fairer Finance podcast, Mr Rathi explained that the FCA strategy and "pillars" include market growth, reducing financial crime, helping consumers navigate their financial lives and being a smarter regulator. He also said he had warned that easing mortgage rules could cause “additional distress” if interest rates rose significantly, in a candid interview.
Mr Rathi said: "We are a world away in terms of where our market is as compared to the years before 2008, both in terms of the level of debt we have, in terms of mortgage and consumer debt. We don't have the 125% loan-to-value mortgages and interest-only is a much smaller component of the overall mortgage book compared to 20 years ago. Society has changed, and if regulation does not take account of the way the country has changed, we are not doing our job properly."
He added that the easing of lending rules was quickly implemented by many lenders and that, while the changes may lead to additional repossessions, most will benefit. "Some pay less for their mortgage than their rent, so it wasnt a question of affordability in terms of their balance sheet. There has been an average of £30,000 more in terms of mortgage borrowing and a huge increase in the number of first-time buyers."
While easing lending rules does not come without any risk, he said, “Over the cycle, over an interest rate cycle, that might mean a modest amount of additional distress if interest rates rise significantly. You can’t do both, but there are benefits and there are costs of any policy shift.”
What have the mortgage lenders changed in terms of mortgage affordability?
Banks and building societies in the UK changed their affordability criteria recently, and in some cases, it is now possible to borrow much more than in the past — but this depends on which lender you use and your income and the size of your deposit.
Most mainstream lenders historically capped how much you can borrow at around 4× to 5× your annual income, or 4× to 5× your joint income if you are buying with a partner. This means if you earn £50,000 a year, you could typically access around £250,000.
Due to regulatory changes, increased competition, and lenders wanting to help buyers purchase homes or remortgage. Some lenders, including HSBC and NatWest, have increased their maximum from around 5× to 5.5× or even 6 or 6.5× income for certain applicants who meet higher income and acceptance criteria thresholds. Regulatory relaxation of income caps, allowing lenders more flexibility and for them to issue more generous loan sizes. HSBC recently began offering up to 6.5 times salary to higher earners in a bold move that shocked many in the mortgage market and generated significant press coverage.
Lending solutions with Trinity Financial
Are you looking to buy a property and require expert advice? We’re here to help you find a solution – no matter how complex your circumstances. Our expert brokers have extensive experience providing creative solutions to secure mortgages for our clients.
Call Trinity Financial on 020 7016 0790 to secure a more generous mortgage, book a consultation or use our appointment calendar
The information contained within was correct at the time of publication but is subject to change.
Your mortgage is secured on your property. Your property may be repossessed if you do not keep up repayments on your mortgage
Get started today
Speak to one of our mortgage experts. Book an appointment to come and see us or request one of our experts to call you.
