New Mortgage Rules: Who can Afford to Move?
Mortgage tightening is still a big problem for the housing industry as we enter 2015.
Figures from the British Bankers’ Association showed only 36,717 mortgage approvals for house purchases in November – 20% down from the same time last year. Primarily this is due to regulators trying to slow down the exponential rise in property prices, but George Osborne’s changes to stamp duty in the latest Autumn Statement could indicate a small revival in the market. Buyers paying less than £937,500 for a new home will now face lower stamp duty.
Yet, despite the tightening mortgages and fewer mortgage approvals, the number of first time buyers in the UK rose sharply in 2014. In August there were over 28,300 first time buyer completions – 7% more than August 2013 – with the average price of a first time buyer’s home at £151,942 – 3.5% higher than August 2013.
The sharp rise in house prices, which have risen 11.7% in a single year from 2013-2014, have forced regulators to tighten the mortgage market. The available low interest rates are seen to encourage large household debt. As a result the Financial Conduct Authority (FCA) is forcing lenders to instigate tougher affordability tests on potential clients. While key to ensuring fewer borrowers find themselves in negative equity, the time required to gain a mortgage and complete a move is likely to be much extended due to a deeper interview process.
Second mortgages are also impacted. From March 2016, borrowers will be tested under stricter measures to ensure they can afford two mortgages according to tighter FCA rules. Those who turn to second mortgages as a last resort because of a lack of funds are likely to be turned down.
Despite mortgage tightening, many industry professionals remain optimistic for 2015. Andy Gray, the managing director of mortgages at Barclays sees the coming year as one of “steady but robust lending”, and while it may not be “spectacular” in activity it will be “a positive and busy year for the mortgage lending community as a whole”.