Rachel Reeves’s proposed mortgage overhaul could drive up house prices in London by as much as £20,000, according to new analysis.
The changes, which aim to make home-buying more accessible by relaxing lending rules, are expected to boost demand in the housing market.
Higher house prices would be an “inevitable consequence” of proposals to relax rules on mortgage lending as the Chancellor tries to find new ways to boost economic growth, according to Savills.
In London, where affordability is already an issue, first-time buyers could see prices rise by four per cent to around £494,122.
Reeves has backed the Financial Conduct Authority’s (FCA) plan to ease mortgage lending restrictions introduced after the financial crisis. However, with no corresponding increase in housing supply, the policy shift could inadvertently make it even harder for many Londoners to get onto the property ladder.
Rachel Reeves mortgage shake-up could push house prices up by £20,000
getty
Although the intention is to help first time buyers borrow more money with smaller deposits, the analysis suggests this move could backfire, with house prices potentially rising by £20,000 this year alone.
Jonathan Bone, Head of Mortgages at Better.co.uk, has highlighted several strategies for prospective homeowners to navigate these challenging market conditions.
The policy changes, while designed to make home buying more accessible, are creating a complex situation where increased borrowing capacity could lead to higher property prices.
Several Government schemes remain available to help first-time buyers overcome these market challenges.
The Right to Buy and Shared Ownership schemes allow buyers to purchase between 25 per cent and 75 per cent of a property while paying rent on the remaining portion, reducing initial costs.
First-time buyers can benefit from Stamp Duty Relief, with no duty payable on properties up to £425,000.
The Lifetime ISA offers additional support, allowing savings of up to £4,000 annually with a 25 per cent government bonus, potentially adding £1,000 each year to house deposits.
Experts advise that saving for a larger deposit remains crucial in the current market environment.
Recent data from Better.co.uk shows significant interest rate advantages for bigger deposits, with 2-year fixed mortgages at 4.59 per cent for 20-30 per cent deposits compared to 5.49 per cent for 10 per cent deposits.
LATEST DEVELOPMENTS:
Similar benefits apply to 5-year fixed rates, offering 4.45 per cent with a 20 per cent deposit versus 4.90 per cent with a 10 per cent deposit.
Financial advisers recommend cutting back on luxury purchases, reducing unnecessary expenses, and utilising high-interest savings accounts to build larger deposits.
These savings on interest rates can substantially improve the long-term affordability of a first home. Mortgage brokers play a vital role in helping first-time buyers secure better deals across multiple lenders.
Savills’ analysis was based on what could happen if the changes increased the average loan-to-income ratio among first-time buyers from 3.22 to 3.47.
In London, this change would reduce the size of an average first-time buyer deposit from £142,349 to £123,360, meaning that a first-time buyer would need less cash upfront to purchase the property.
However, by making it easier to buy with a smaller deposit, the rule changes would increase demand, which in turn could drive up house prices by an extra £18,989.
Across the UK, the rules changes could drive up house prices by around three per cent, adding £7,679 to the average first-time buyer home.
Location flexibility can improve first-time buyers’ chances of buying a home. Areas outside London and the South East are usually more affordable.
Experts suggest looking at areas with regeneration or good transport links for future value growth.
For buyers focused on specific areas, smaller properties or those needing renovation can be a cheaper option and a good investment.