Homeowners are being warned over changes to mortgage rules that come into effect within days. The Bank of England confirmed last month that an affordability test for mortgage lending will be ditched from August.
An affordability test for mortgage lending will be dropped by the Bank of England from August 1. As it stands, buyers need to prove they can pay a rate that is three percentage points higher than the reversion rate. But the Bank of England is now scrapping this test.
Buyers could be able to secure larger loans under the new rules.
Chris Sykes, technical director at Private Finance, said it was “great news for borrowers that were becoming increasingly tight on affordability and it is limiting their borrowing power with each change to affordability calculators”, Birmingham Live reports.
Gemma Harle, managing director at Quilter Financial Planning, said: “Although the shift in rules is one of the many attempts to help first-time buyers get their foot on the ladder, it may end up having the opposite effect.
“One of the main drivers behind ‘generation rent’ is the fact that house prices have massively outstripped wage growth. Due to high house prices, first-time buyers also need very sizable deposits and in the current fiscal environment saving this type of money will be very difficult due to increasing rents and the cost of living.
“On top of this, inflation will be eating away at any other savings they have sitting in cash."
The Government recently announced an extension of the Right to Buy scheme in England and an independent review of access to mortgage finance for first-time buyers, with the aim of widening access to low-cost, low-deposit finance such as 5% deposit mortgages.
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