What Rachel Reeves’ ‘risky’ mortgage move means for your house price | Personal Finance | Finance

Rachel Reeves has backed a significant change to mortgages which will enable more money to be borrowed and hopefully get more people on the property ladder. However, it is said there are concerns the move could drive up prices and make homes less affordable.

Under the changes, more mortgages will be available at more than 4.5 times a buyer’s income following recent Bank of England recommendations that some lenders can offer more high loan-to-income mortgages if they choose to. The Government says this will create up to 36,000 additional mortgages for first-time buyers over the first year. Nationwide, Britain’s biggest building society, has relaxed the income criteria for its Helping Hand Mortgage boost which offers lending up to six times a buyer’s income.

Eligible first-time buyers can apply for the mortgage with a £30,000 salary, down from £35,000, and joint applicants with a £50,000 combined salary – down from £55,000. This is expected to support an additional 10,000 first-time buyers each year.

While this appears positive, larger loans will lead to increased monthly mortgage repayments and some experts have expressed concerns over whether people will be able to afford them, as well as concerns over a rise in house prices.

Jeremy Leaf, a former Royal Institution of Chartered Surveyors residential chairman, warned the move, combined with inflation — which unexpectedly jumped to 3.6% last month — and a lack of new homes could cause prices to shoot up.

He told the Express: “It could help stoke prices at a time when supply, in terms of new build, is not yet reaching the levels that the Government are hoping it will aspire to.”

“It’s a headline-grabber,” added Mr Leaf, who warned lenders should double-check they can afford the repayments.

“It will bring more people to the table and first-time buyers should maybe be interested in looking at it.

“But they need to look at the pattern of their spending, not just presently, but where they expect it to be in a few months and a few years to make sure it doesn’t compromise their lifestyle and they have a fair idea that the price of the property is going to be at least maintained and maybe gently increase.”

There also concerns that the larger mortgage fees and rising house prices could make it trickier for first-time buyers and those looking to move home, reports the MailOnline’s This is Money.

Ravesh Patel, mortgage broker at Reside Mortgages, said: “We’re not making homes more affordable, we’re just making debt more accessible. That’s a dangerous road to go down, especially when interest rates are still high.”

He added: “It might help a few more buyers squeeze onto the ladder, but in reality, it just stretches them further financially.”

Aaron Strutt, mortgage broker at Trinity Financial, also said: “There is no doubt a six times salary mortgage for someone on £30,000 buying a new build home with a 5% deposit could be seen as risky.”

Some have claimed increasing the limits of a lifetime ISA scheme to support younger people saving for a deposit could’ve been more useful.

Samuel Mather-Holgate, managing director at Orchard Financial Advisers, told This is Money: “Bigger boosts for deposit saving would have been more beneficial to borrowers.

“A way of helping stuck renters to save whilst renting would be a welcome change, too.”