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What do the new mortgage lending rules mean for home prices?

LATEST NEWS | 04.12.2021

Officials are considering changing the part of affordability checks which tests whether borrowers could afford their repayments, even if they moved to a higher interest rate mortgage deal after their fixed-rate deal ends. While it may be easier to secure a mortgage under these new conditions, finding a home you can afford could be much harder. Here’s everything you need to know about the potential changes and what they mean for house prices.

What does softer mortgage lending rules mean?

When applying for a mortgage, you must meet strict affordability criteria that are dictated by a set of mortgage lending rules. These rules were released in 2014 during the financial crisis.  The rules are in place to ensure that homeowners are able to meet their monthly repayments, even in the cases of their interest rate rising or a lowered income. As a result, lending rules place an additional 3% interest rate charge on new mortgages. The strict rules have made it incredibly difficult for first-time buyers to get on the property ladder, which is why the Bank of England has announced this consideration of softening them. The softer rules could scrap the 3% interest rate charge and present a looser affordability test. 

How will the new mortgage lending rules affect house prices?

Though softer lending terms will make it easier for first-time buyers to access mortgages, experts are concerned that an influx of eligible applicants could cause house prices to surge even further, causing a housing bubble.

What is a housing bubble?

A housing bubble categorises a sudden increase in house prices caused by high demand and low supply.

How to prepare for the new mortgage lending rules

If you’re in the position to do so, the sooner you jump on the property ladder, the better. The new rules will inevitably leave you with less choice on the market, so it’s best to get a head start on the paperwork and affordability checks.  If you’d like some more help with the new mortgage lending rules, get in touch with one of our friendly mortgage brokers here to discuss your options further. We can help you secure a mortgage before the housing market becomes too crowded, ensuring your application is free from mistakes to speed up the process.
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