How mortgage market changes could help first-time buyers onto the property ladder

Independent

a day ago

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First-time buyers may be set for a leg-up onto the property ladder thanks to changing attitudes from the financial regulator - but there are risks to the changing landscape.
Getting on the property ladder has been made harder in recent years by record high house prices that have outpaced wage growth.
Additionally, stamp duty thresholds dropped for first-time buyers in April from £425,000 to £300,000 and from £250,000 to £125,000, adding to the upfront costs of buying a property.
First-time buyers may still benefit from the stamp duty exemption across most of the country where properties are worth below £300,000, though the average property price in London is £567,000, making it hard to buy in the capital.
Even if you can find a property, many buyers have been restricted by tough mortgage regulations.
The Financial Conduct Authority (FCA) introduced tougher lending rules in 2014 under the mortgage market review to stop a repeat of the 2008 financial crisis, where many borrowers were left with loans they couldn't afford.
That has meant buyers have to pass tough affordability assessments and interest rate stress tests.
One silver lining is that mortgage rates have been falling in recent months, although they remain higher than historical standards.
This all makes getting on the property ladder more complex and expensive - but it may be about to get easier.
How is the mortgage market changing
Ultimately, a housing market without people buying homes means less money is spent in the economy on activities such as estate agencies, legal services and removals, plus the Treasury takes less tax.
This is part of the reason why Chancellor Rachel Reeves has called on regulators to be more inventive to help stimulate economic growth.
The FCA launched a discussion paper last month seeking ideas on changes to encourage home ownership and economic growth.
Outcomes include more flexibility on stress tests, letting past payment of rent alone prove affordability and lending to first time borrowers based on their expected career trajectories.
David Geale, executive director for payments and digital finance, said: 'We want to evolve our mortgage rules to help more people access sustainable home ownership. Having achieved higher standards in the market, now is the time to consider allowing more flexibility in a trusted market.
"Changing our mortgage rules could make it easier for people to get onto the property ladder and manage mortgages into retirement.
'We can't solve all the issues related to home ownership. But we're playing our part in helping people better use the mortgage market to navigate their financial lives and to encourage a dynamic, innovative and competitive market.'
Changes already in effect
The FCA has already made some changes by altering rules around loan-to-income (LTI) ratios.
The ratio caps the number of new residential mortgage loans that can be made at an LTI of 4.5 times or more to 15 per cent of their total number of new mortgage loans per year.
Since 11 July 2025, the limit has applied to lenders who approve loans with a total value of above £150 million a year, rather than the current £100m threshold that was set in 2014.
This will ultimately help smaller mortgages approve more loans.
Rachel Geddes, strategic lender relationships director at the Mortgage Advice Bureau, said lenders, brokers and customers have been crying out for an update for some time.
She added: 'The caps for lenders have been so rigid as they've tried to be risk averse, so it's actually become a hindrance in limiting the customer's ability to buy.
'We need to help people become homeowners, and this is one of the ways of doing it - as long as it's done in a very responsible way.'
Santander then became one of the first lenders to relax their stress test rules, with others following.
There are signs that the sentiment from the FCA is being reflected among mortgage lenders.
Average mortgage rates are close to a three-year low, according to Moneyfacts, while product choice has also increased overall to 6,908 options - the highest level since October 2007.
Nationwide has already said it will increase its lending limits.
Many mortgage brokers remain cautious though, with memories of the 2008 financial crash still on many people's minds, when homeowners got stuck in negative equity as house prices crashed and the value of their property fell below what their loan was worth.
Riz Malik, director of R3 Wealth, said: 'First-time buyers need help but not at any costs. Lending them more today might get them on the ladder but it is not helpful if that mortgage then becomes a noose and you end up living to pay your mortgage if rates rise in the future.
'Just because a lender may give you a large mortgage doesn't mean you should take every penny they are prepared to lend and inexperienced borrowers need to be made aware of this.'
Responsibility remains key for both lenders and borrowers, as well as regulators.
Rob Peters, principal at Simple Fast Mortgage, added: 'Relaxing rules could open the door for many who currently can't get on the property ladder, but we must tread carefully.
'Greater flexibility in lending can encourage innovation and expand options, but it also brings risks if we don't keep affordability and long-term sustainability at the forefront. The key is balancing innovation with responsible lending, ensuring people don't overcommit and face financial hardship down the road.'
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