Lloyds Bank and Halifax have launched a mortgage policy allowing first-time buyers to borrow up to 5.5-times their income, an increase from the previous limit of 4.49-times.
In light of this development, Mojo Mortgages conducted an analysis in its latest mortgage-to-salary ratio report.
After analysing the average salary and house price in the UK’s top 80 most populous cities to calculate the most common mortgage-to-salary ratio, the findings revealed that first-time buyers in 27 cities would benefit from Lloyds’ and Halifax’s extended borrowing capacity.
Under the new guideline, Lloyds and Halifax will use a 5.5-times mortgage-to-salary ratio to determine lending amounts.
For instance, a prospective buyer earning £30,000 could now potentially secure a mortgage of up to £165,000, compared to the previous limit of £135,000 under the 4.5-times ratio.
In total, 14 cities are now more affordable for solo first-time buyers on an average wage.
These include Wigan, Liverpool, Coventry, Doncaster, Barnsley, Gateshead, Bradford, Sunderland, St Helens, Stoke-on-Trent, Darlington, Aberdeen, Blackpool and Blackburn.
A total of 13 cities are now more affordable for couple first-time buyers on an average wage.
These include Sutton Coldfield, Bournemouth, Chelmsford, Exeter, Eastbourne, Bristol, Maidstone, York, Basildon, Solihull, Bedford, Colchester and Basingstoke.
John Fraser-Tucker, head of mortgages at Mojo Mortgages, said: “This may come as good news for first-time buyers as it potentially opens up opportunities for homeownership across the UK.
“Our analysis of the UK’s top 80 most populous cities reveals a significant shift in affordability.
“Now, the number of affordable cities for solo home buyers on an average wage has jumped from 4% to 21%, while couples on an average salary can consider an average-priced property in 86% of these cities.”
He added: “However, it’s important to be aware of the risk too.
“Whilst being able to borrow more may allow more aspiring first-time buyers to purchase their first home, higher borrowing limits come with higher monthly mortgage repayments.
“And given that mortgage rates are still significantly higher than they were a few years ago, it’s key that first-time buyers ensure that their payments are manageable.
“There’s also the risk that increased borrowing capacity could lead to rising house prices as demand grows, which could diminish the overarching goal of affordability for first-time buyers.
“Despite these challenges, the overall outlook is optimistic.
“With mortgage rates beginning to lower following the Bank of England’s recent base rate announcement, there is hope that these changes will create a more favourable environment for first-time buyers.”
