Ritika Janiya
It’s a major change for first-time house buyers, as the UK’s largest building society, Nationwide, announced that it will lend new buyers up to six times their earnings. This is being described as a “game-changer” in the mortgage industry, since other lenders, including Halifax and Lloyds, have also recently agreed to allow loans of up to 5.5 times income.
What’s Happening?
The good news from Nationwide is that, as a first-time buyer, you can borrow more than before. Consider this: if a married couple has a combined annual income of £50,000, they could now borrow as much as £300,000, while the previous limit was just £225,000. It’s obviously much easier for people to buy their first home in this rising market on house prices.
Nationwide is slashing its mortgage rates and raising its maximum affordability ceiling so you can borrow more. But to buy a house worth more than 90% of its value, you could now borrow £750,000. The limit used to be £500,000. That beats a lot of other banks, putting Nationwide ahead of others in an extremely competitive market.
Why now?
The reason for such a big shift is the recent price war in mortgages among lenders. After the Bank of England’s interest rate cut on August 1st, the banks have been trying to be at the head of the queue with better rates to attract more customers. Fixed-rate mortgages are loans where the borrower is guaranteed an interest rate over a specific period. They have become relatively inexpensive. For the first time since February, some fixed deals are being offered below 4%. This means it is the best time for homebuyers to consider applying for a mortgage.
Nationwide is now the first of the big lenders to offer a fixed deal below 5% for first time buyers who can only afford a 5% deposit. It therefore presents an excellent opportunity for those who concluded that owning a home wasn’t within their reach.
What Makes This Different?
Traditionally, most lenders would lend buyers only as much as 4.5 times annual income in loans. But over the last few years, some lenders have started up to 5.5 times. Lloyds and Halifax recently raised their limits to 5.5 times income. However, very few banks – including Nationwide – allow loans to be six times income or higher.
In reality, only a few lenders, such as Perenna, go as high as six. Last year Habito said it would allow some homebuyers to borrow as much as seven times their income, but this hasn’t taken off.
Nationwide increased its limits to 5.5 times in April 2021 with the Helping Hand scheme and is now raising the stakes for first-time buyers.
A Help to New Buyers
John Charcol’s mortgage expert Nicholas Mendes described the move as a big boon for first-time buyers. He elaborated that several people will be benefited who were unable to buy a house over the last few years with the stringent criteria. David Stirling of Mint Mortgages & Protection said similar changes will help up the amount borrowed by 33%.
It has already helped some 40,000 first-time home buyers since launching the scheme three years ago. Nationwide chief executive Debbie Crosbie said that the aim now is to extend the credit and the maximum loan a person can take out under the scheme.
What This Means for You
So where does all this leave you? Well, if it is the first time that you would buy, this is a good opportunity to become a homeowner as borrowing limits are high and rates are so low that you may find that owning your dream home is closer than what you think.
Let’s take it step by step; if you earn a good salary and have saved up for a deposit, you could now afford a larger home than you could have just a few months ago. You could buy a house in a neighborhood that you love to dwell in instead of opting for a smaller place that does not meet your needs.
Consider Your Options
As you consider this, do not forget to shop and compare the various offers that you receive from other mortgage proposals. Even with the new rules put in place by Nationwide, other banks have different rates and terms which could be more advantageous for you.
It would then be wise to consult with a mortgage adviser who might discuss the best options available based on your situation before making decisions. The adviser may discuss, in detail, all the ins and outs of the mortgage process and the best offer that can be obtained.
