Banks plan home loans at 50 YEARS

Banks plan 50-YEAR home loans: Bank of England to relax mortgage rules to help first-time buyers move, which could drive up house prices

  • Bank of England set to dilute mortgage rules tomorrow
  • Easing restrictions will make it easier for borrowers to take larger loans
  • It is likely to add fuel to house prices which are already reaching record highs

Mortgage lenders are gearing up to launch a slew of new products with lower barriers for borrowers and fixed rate terms of up to 50 years, The Mail on Sunday has learned.

The Bank of England is widely expected to water down mortgage rules as early as tomorrow. Easing affordability restrictions will make it easier for borrowers to take out larger home loans.

This move would allow buyers to borrow more at an earlier stage, thus opening up the market to much younger buyers. But it is also likely to fuel house prices which are already reaching record highs.

Everything is changing: Bank of England expected to dilute mortgage rules

Perenna, a new lender who is awaiting approval for his banking license early next year, plans to launch 30-year fixed-rate home loans as a first step. He said he intended to roll out 40- and 50-year mortgages at a later date.

It will also allow some home buyers to borrow up to six times their income. This compares to less than five times the income for the vast majority of home buyers today.

The plan closely follows the introduction of a 40-year fixed rate product by mortgage lender Kensington, meaning borrowers would not be affected by an interest rate hike for four decades.

Colin Bell, co-founder of Perenna, said: “When I took out my first mortgage I was in my mid-twenties. It just doesn’t happen these days because people find it too. difficult to access the mortgage ladder.

‘But if I was 25 and I was offered a [fixed rate] the mortgage that took me to 75 is not a bad thing to have.

“We would like people to move up the ladder sooner, because the problem is that house prices keep rising above wages, so deposits go up.”

The Bank of England is considering allowing lenders to increase the proportion of large mortgages they offer to people who need to borrow more than 4.5 times their salary.

Many believe the affordability test – which checks whether a borrower can afford the lender’s standard variable rate plus 3% – is too onerous.

The bank imposed accessibility rules in 2014 after the financial crisis to ensure that borrowers would be able to pay their mortgage payments if interest rates were to rise.

However, mortgage experts say there is a strong case for relaxing the rules, as interest rates languish at an all-time high of 0.1 percent.

This move would be a huge boost for home buyers, further fueling home prices.

Data released last week showed house prices rising at their fastest pace in 15 years, with the average cost of a house hitting £ 272,992.

Bank of America analysts said they saw “a strong case” for relaxing the rules and “supporting the growth of the mortgage market.”

Bank of America analyst Alastair Ryan said even a small change in affordability rules could add 2% to mortgage lending growth, which equates to an additional £ 32bn per year.

He added: “Agreeing to relax the rules … might suggest that the BoE is not concerned about rising house prices.”

The Bank of England is also due to release the results of its annual stress tests on banks.

These should show that banks have strong capital buffers, paving the way for even more lending.

Andrew Wishart, of Capital Economics, said if the 3 percent mortgage affordability test was reduced to 2 percent, buyers could borrow 10 percent more.

However, he added: “We do not think it makes sense to relax mortgage rules, especially when the outlook for inflation and interest rates is so uncertain.”

The changes could come just as the mortgage market is set to post a record year for mortgages, at over £ 300bn.

Perenna plans to use bonds to finance its mortgages, which Bell says is “unique in the UK”. He said the 30-year deal rate would likely be between 2.5% and 3.5%.

Some economists have said they expect the central bank’s base interest rate not to be raised until next year due to the spread of the Omicron Covid variant.

UBS analysts said: “Omicron concerns are likely to postpone the first hike to February despite growing indications of stronger inflationary pressures.”

Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown, said: “While a rate hike cannot be completely ruled out next week, most bets are wrong that the Bank will push them so soon. . ”

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