Bank of England Relaxes Mortgage Rules to Aid Housing Market Access for First Time Buyers

The Bank of England has unveiled a significant shift in mortgage regulations, potentially enabling 36,000 additional first-time buyers to step onto the property ladder annually. The revised guidelines permit banks and building societies to extend their offerings of high loan-to-income (LTI) mortgages, specifically those equivalent to or surpassing 4.5 times a borrower’s yearly earnings.

Sam Woods, chief executive of the Bank’s regulatory arm, the Prudential Regulation Authority, emphasised the substantial nature of these changes. The modifications could unlock capacity for tens of thousands of high-LTI mortgages for first-time buyers, addressing a crucial market gap.

Under the new framework, lending institutions can now request approval to increase their proportion of high LTI mortgages, provided these loans remain below 15% of new lending across the UK annually. Recent data indicates high LTI lending at approximately 9.7%, with projections suggesting an increase to 11% by late 2025.

The Labour government’s influence is evident in these developments, as Chancellor Rachel Reeves prepares to announce a “Freedom to Buy” scheme. This initiative will see the Treasury providing guarantees for 95% mortgages, effectively shouldering the risk of borrower defaults and repossessions.

The Bank’s financial stability report highlights ongoing challenges, noting that nearly 80% of potential first-time buyers lack sufficient savings for a 5% deposit on typical properties in their areas. This statistic underscores the broader affordability crisis in the UK housing market.

While these changes represent a significant shift in lending policy, the Bank maintains its commitment to managing overall risk levels. The measured approach aims to balance increased market accessibility with prudent financial management, marking a careful evolution in UK housing finance.