Habito comments on Bank of England lending rules

Martijn van der Heijden, Chief Financial Officer at Habito, comments on Bank of England lending rules, explaining how relaxing lending caps will help ease the burden on buyers; however, it’s unlikely that 6x will be accessible to everyone.

“The move by the Bank of England to review lending limits for mortgages is first of all, an improvement of method. Crude income multiples used across the board should hopefully make way for more intelligent approaches using borrowers’ true budgets and individual risks.

“Any new lending limits would also accept that the absolute levels of debt burden are lower at these low interest rates, than what was imagined when the previous rules were first set. Secondly, they are of course a reflection of where house prices in the UK have got to, in comparison to average wages. 

“Affordability has been a huge issue for younger buyers for many years. With average British salaries now £31,285 and the average national house price being £270,000, we’re in a situation where the house price to income ratio is now 8.6 – falling way short of the current cap of lending 4.5-5x income. 

“But this also isn’t a universal issue – it’s certainly worse in some regions over others. For example, in London that ratio is 11.7x and that’s what has meant that ever larger deposits are required in the capital. That’s one of the reasons why the Bank of Mum, Dad and Grandparents were needed to lend a record-beating £9.8 billion in 2021. But not everyone has a family who can step in and help in this way, or a partner whose income can be combined with their own, to get a larger loan-size. 

“While this relaxing of lending caps will help ease the burden on buyers for having large deposits, lenders will vary in their offering and will also continue to judge every application individually – so it’s unlikely that 6x will be accessible to everyone. 

“At Habito, we launched the first fixed for life mortgages in the UK earlier this year. This type of mortgages by their nature don’t carry a risk of higher payments should rates rise, we believe therefore lenders and regulators should be more comfortable with greater levels of borrowing if applicants choose a fixed for life mortgage.”

Kindly shared by Habito

Main photo courtesy of Pixabay