Historically, borrowers have been subject to two test recommendations: the ‘flow limit’ which limits the number of mortgages that can be extended at loan, and the ‘affordability test’ which specifies the stress interest rate for lenders. The tests were originally put in place after the 2008 financial crash as insurance against further economic downturn.
The removal of such tests means that those who dream of owning a home can borrow more when applying for a mortgage, a perfect opportunity for first-time buyers looking to get their first foot on the property ladder after years of living in a housing market pitted against them.
The new policy changes will be specifically targeting renters paying hefty sums every month because they can’t afford to buy, a direct issue for landlords who have been able to justify hiked-up rent prices due to the current housing market. With fewer renters on the market, landlords will not be able to maintain their current rent levels, and those operating in the let to buy market will no longer be able to benefit from the previously large pool of renters looking for somewhere to live.
According to Sterling Capital Group Ltd, without these tests, more first-time buyers will be able to get out of the vicious rental cycle and invest in their first property.
Ashlee Reid, Founder of Sterling Capital Group Ltd, comments: “This is good news for first-time buyers. Times have changed, it’s now easier for homeowners to remortgage at a more competitive rate with product transfers and new deals from other providers, however, this will drive up property prices due to high demand, but at the same time give a lot of first-time buyers the opportunity to get on the ladder.”
Although the Bank of England’s recommendations signal good times ahead for first-time buyers, the outlook isn’t as positive for landlords and those in the buy to let market.
