Britain’s biggest mortgage provider is increasing the maximum sums it is willing to lend first-time buyers in a £2bn move that experts say will bring home ownership within the reach of more people but could further increase house prices.
Lloyds Banking Group’s decision to let people borrow more means those who meet the criteria may be able to buy a property they might have assumed was well out of their price range.
Brokers said the decision, which could be viewed as the latest salvo in a home loans price war, may cause other lenders to follow suit. However, it may also prompt concern about the risks of stretching affordability criteria for would-be home owners.
The group’s Lloyds and Halifax brands will allow new buyers to take out loans worth up to 5.5 times their household annual income – up from 4.49 times, and higher than the traditional maximum.
As a result of the changes, the maximum sum a buyer with an income of £50,000 can borrow will rise from £224,500 to £275,000 – a 22% increase.
In recent years, soaring house prices, higher mortgage costs and broader cost of living pressures have combined to create what some industry experts said may be the most difficult conditions for first-time buyers in 70 years.
However, there has been more competition in the mortgage market over the past few months. In July, new fixed deals priced below 4% went back on sale for the first time since February and rates on these products are continuing to come down, fuelled by the Bank of England’s 1 August interest rate cut and the expectation of more to come.
Lloyds said it was “tough right now” for those hoping to get on the ladder, so it was making £2bn available to first-time buyers borrowing more than 4.5 times their income.
Traditionally, the typical maximum for how much someone can borrow was 4.5 times their annual income, but in recent years a growing number of lenders have been offering higher so-called income multiples. In late 2021, one lender, Habito, said it would let some homebuyers borrow up to seven times their income, and one or two others have gone up to six times.
In the years after the financial crisis of 2007-08, rules were tightened up to prevent a repeat of the reckless lending that some say was rife before the crash. The Bank of England imposed limits on mortgages of more than 4.5 times earnings so that banks could offer only higher income multiples on a set proportion of lending.
While the Lloyds decision, which is similar to an initiative announced by Nationwide in 2021, may cause concern in some quarters about the risks of letting people borrow more, those who apply will have to meet the stricter affordability rules adopted by lenders after the crisis. In addition, in the case of Lloyds and Halifax, the annual household income must be at least £50,000, and borrowers will still have to put down a deposit of at least 10%, so the most they can borrow as a proportion of the property value is 90%. Those requirements will reduce the lender’s risk but will rule out many would-be buyers.
Lloyds said that according to some estimates, more than half of first-time buyers now needed a loan of more than 4.5 times income, rising to 80% in London.
Riz Malik, director of broker firm R3 Mortgages, said Lloyds/Halifax was “leading the charge in getting first-time buyers on to the property ladder”. He added: “The recent rate cuts and being more flexible on lending criteria create the perfect environment to kickstart the UK’s housing market.”
Tony Castle, managing director at PFG Mortgages, said: “Lenders like Halifax making big moves with 5.5 times income will really help drive the property market in the right direction.” He added that it was a decision “that could trigger other lenders to follow in their footsteps”.
