Banks Plan 50 YEAR Home Loans: Bank of England eases mortgage regulations to help first-time buyers move that could drive house prices high
Mortgage lenders are preparing to launch a range of new products with lower hurdles for borrowers and fixed-rate terms of up to 50 years, The Mail on Sunday has learned.
The Bank of England is widely expected to water down mortgage rules as early as tomorrow. The relaxation of affordability restrictions will make it easier for borrowers to take out larger home loans.
The move would allow buyers to borrow more earlier, opening the market to much younger buyers. But it will likely also boost house prices, which are already climbing to record highs.
All Changes: The Bank of England is widely expected to water down mortgage regulations
Perenna, a new lender pending approval of its banking license early next year, plans to take out home loans with a fixed rate of 30 years initially. They intend to introduce 40- and 50-year mortgages at a later date.
It will also allow certain home buyers to borrow up to six times their income. That compares to less than five times the income for the vast majority of home buyers currently.
The plan closely follows the launch of a 40-year fixed rate product by mortgage lender Kensington, which means borrowers would not be hit by rate hikes for four decades.
Colin Bell, Co-Founder of Perenna, said, âWhen I took out my first mortgage, I was in my mid twenties. It just doesn’t happen anymore these days because people have too much trouble getting on the mortgage ladder.
“But if I were 25 and were offered a 50 year” [fixed rate] Mortgage that got me to 75 isn’t bad.
“We want to get people up the career ladder earlier because the problem is that property prices keep rising above wages and therefore deposits are getting higher.”
The Bank of England is believed to be considering whether to allow lenders to increase the percentage of large mortgages they offer to people who need to borrow more than 4.5 times their salary.
Many find the affordability test – which checks whether a borrower can pay the standard floating interest rate plus 3 percent from the lender – too burdensome.
The bank introduced the Affordability Rules in 2014 after the financial crisis to ensure that borrowers can afford their mortgage repayments when interest rates rise.
However, mortgage experts say there is a strong case for loosening the rules as rates remain at a record low of 0.1 percent.
The move would give home buyers a huge boost and drive house prices even higher.
Data released last week showed house prices have increased at the fastest rate in 15 years, with the average cost of owning a home hitting Â£ 272,992.
Bank of America analysts said they see “a strong case” for relaxing the rules and “helping the mortgage market grow.”
Alastair Ryan, an analyst at Bank of America, said even a small change in affordability rules could increase mortgage growth by 2 percent – an additional Â£ 32 billion a year.
He added, “Approval to relax the rules could indicate that the BoE does not care about soaring house prices.”
The Bank of England will also publish the results of its annual bank stress tests.
These are intended to show that the banks have strong capital buffers – which paves the way for even more lending.
Andrew Wishart of Capital Economics said if the 3 percent test of mortgage affordability were reduced to 2 percent, buyers could borrow 10 percent more.
He added, however, “We think it is unwise to relax the rules on mortgage lending, especially when the outlook for inflation and interest rates is so uncertain.”
The changes could come while the mortgage market is well on its way to a record year for mortgage lending at over Â£ 300 billion.
Perenna plans to use bonds to fund her mortgage, which Bell said is “unique in the UK”. He said the interest rate on the 30-year contract will likely be between 2.5 and 3.5 percent.
Some economists assume that the central bank’s key interest rate will not be raised until next year due to the spread of Omicron’s Covid variant.
UBS analysts said, “Omicron’s concerns are likely to postpone the first rate hike to February amid mounting signs of heightened inflationary pressures.”
Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown, said: “While a rate hike next week cannot be completely ruled out, most bets are gone that the bank will push them up anytime soon.”