Chancellor says more high loan-to-income ratio mortgages will be available after ‘Leeds Reforms’
The chancellor is set to announce reforms to financial regulations in the hopes of boosting homeownership.
Rachel Reeves will address a summit of finance executives in Leeds tomorrow, where she will announce plans to relax financial regulations.
According to the Treasury, these “Leeds Reforms” will address “long-standing industry complaints”
As a result of the changes, more mortgages will be available at more than 4.5 times a buyer’s income, which the government says will create up to 36,000 additional mortgages for first-time buyers over the first year of the new system.
Under the current Bank of England rules, mortgage lenders can originate new loans with a loan-to-income (LTI) ratio of 4.5 or higher to no more than 15% of their total number of new mortgages each year.
Advocates for a more liberal approach argue that it would improve market access, particularly for first time buyers, while others argue that changing the rules would introduce greater risk into the system.
The Bank’s financial policy committee recommended last week that this rule, known as the loan-to-income flow limit, be amended to allow individual lenders to increase their share of lending at high LTIs, while aiming to ensure that the aggregate flow stayed within the 15% limit.
According to the Treasury, the changes mean that Nationwide bank will be able to make its ‘Helping Hand’ mortgage available to people with lower incomes.
From Wednesday, eligible first-time buyers will be able to apply for the mortgage with a £30,000 salary, down from £35,000, and joint applicants with a £50,000 combined salary, down from £55,000.
The Treasury said this will support an additional 10,000 first-time buyers each year.
The government is also introducing a permanent mortgage guarantee scheme, which it said would ensure high loan-to-value mortgages continue to be available in times of uncertainty.
A review of Financial Conduct Authority lending rules could also allow prospective buyers to use their record of paying rent on time to show they can afford mortgage payments.
After announcing the reforms in Leeds, the chancellor will return to the capital for the annual Mansion House speech on Tuesday evening.
Speaking in the City of London, Reeves is expected to welcome the change to the loan-to-income limit and hail its “instant impact for consumers”, in the form of Nationwide’s expanded offering.
“Today, I have placed financial services at the heart of the government’s growth mission,” she is set to tell attendees.
“Recognising that Britain cannot succeed and meet its growth ambitions without a financial services sector that is fighting fit and thriving.
“And I have been clear on the benefits that that will drive. With a ripple effect that will drive investment in all sectors of our economy and put pounds in the pockets of working people.”
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