The Mail on Sunday learned that lenders to mortgages are planning to introduce a new range of products. They will offer lower rates for borrowers as well as fixed rate terms of up 50 years.
It is expected that the Bank of England will soon relax mortgage regulations. It will become easier for homeowners to get larger mortgages due to the loosening restrictions regarding affordability.
Buyers would be able to borrow more earlier, opening up the market for younger buyers. It is likely that it will increase house prices, which have already reached record levels.
All change: The Bank of England is widely expected to dilute mortgage rules
Perenna is a brand new lender that is still waiting for approval to launch fixed-rate home loans. The initial rate will be a 30 year. Perenna stated it will then offer 40-year and 50-year mortgages.
Some homebuyers will be able to borrow up to six times their annual income. For the majority of homebuyers, this is less than 5 times their earnings.
This plan closely matches the Kensington mortgage lender’s introduction of a fixed rate product with a 40 year term. Borrowers would be unaffected by an increase in interest rates over four decades.
Colin Bell is the co-founder and CEO of Perenna. He said that he was just 20 years old when he took his first mortgage. This isn’t possible anymore, as it has become too hard for people to climb the mortgage ladder.
“But if i was 25, and getting a 50-year contract,” [fixed rate]It’s not bad to have a mortgage that got me up to 75.
‘We’d like to get people on the ladder earlier because the problem is house prices are continuing to rise above wages, therefore deposits go higher.’
It is believed that the Bank of England will be considering whether they allow large mortgage lenders to offer larger loans to people with a need for more than 4.5x their annual salary.
Many believe the affordability test – which checks if a borrower can pay the lender’s standard variable rate plus 3 per cent – is too onerous.
After the financial crisis, the bank established affordability guidelines in 2014. This was to ensure that the borrowers could afford mortgage payments if interest rates rise.
Experts in mortgage lending say that there are strong arguments to ease the regulations, as interest rates have fallen to a new low of 0.1%.
It would give homebuyers a tremendous boost, and drive up the house price.
Data released last week showed that house prices were rising at their fastest rate in 15 years, with the average cost of a home hitting £272,992.
Bank of America analysts stated that they see a strong case for loosening the rules and supporting mortgage market growth.
Alastair Ryan, analyst at Bank of America, said even a small tweak to the affordability rules could add 2 per cent to mortgage growth – which would be equivalent to an extra £32billion a year.
He said: “Agreeing…to ease the rules might suggest that the BoE does not care about rising house prices.”
The Bank of England will also release the results of its annual stress test on banks.
These are expected to show that banks have strong capital cushions – paving the way for even more lending.
Capital Economics’ Andrew Wishart said that the 3 percentage point mortgage affordability check would be reduced to 2 percent so buyers can borrow 10% more.
However, he said that it would be foolish to ease mortgage lending regulations when interest rates and inflation are uncertain.
The changes could come just as the mortgage market is on track to post a record year for mortgage lending, at over £300billion.
Perenna intends to use bonds as a way to finance its mortgages. Bell claimed that Perenna’s plan is unique in the UK. The rate of the 30-year agreement will likely be between 2.5 and 3.5%, according to Perenna.
Some economists claim that they expect the Omicron Covid to spread and the central bank’s base rate not to rise until next year.
UBS analysts said that Omicron concerns would push February’s first increase to February despite rising inflationary pressures.
Hargreaves Lansdown’s senior market and investment analyst Susannah Streeter said that a rate hike cannot be ruled out for next week. However, the majority of bets suggest that they will be raised soon.