First-time homebuyers in the UK may find it easier to get onto the property ladder as lenders, including Coventry Building Society, have increased the loan-to-income ratio to 6.5 times salary and reduced deposit requirements to as low as 5%. This change allows eligible borrowers to potentially borrow more against their income, bridging the gap between average salaries and the cost of typical homes, especially for single applicants.
Coventry Building Society's new criteria mean a single applicant earning an average salary could borrow up to approximately £255,190, which would cover the average first-time buyer property price in England at £245,450, with a 5% deposit of £12,273. Previously, under the lender's former rules, a deposit of around £69,173, or 28% of the property value, would have been necessary. To qualify for this mortgage, single applicants need to earn at least £30,000 annually, while couples must earn £50,000, though self-employed individuals are not eligible.
This move by Coventry Building Society is part of a broader trend among banks and building societies to attract first-time buyers who are currently paying more in rent than they would for a mortgage but are unable to secure a home due to income limitations. Historically, many first-time buyers, particularly single individuals, found it difficult to afford a home with a standard maximum borrowing limit of 4.5 times their income, coupled with the typical 10% to 20% deposit. The updated lending criteria aim to assist those without financial support from family members.
Other lenders also offer competitive mortgage products. April Mortgages allows borrowing up to seven times salary, but requires a minimum annual income of £50,000 and a 15% deposit. Tipton Building Society offers up to 6.5 times income with a 20% deposit. Nationwide's Helping Hand mortgage lends six times income with a 5% deposit for those earning at least £30,000 (single) or £50,000 (joint). NatWest and HSBC offer 6.5 times income mortgages, but with higher income and deposit requirements, typically for high earners or premium customers.
For those unable to save a significant deposit, options like zero-deposit mortgages or those requiring only 1% or 2% deposits are also available. Skipton Building Society's Track Record mortgage, for example, allows up to 100% borrowing for tenants who can demonstrate a history of timely rent payments and the ability to afford mortgage repayments.
However, these more accessible mortgage products often come with higher interest rates. Borrowing a larger proportion of one's salary can lead to higher monthly repayments, increasing the risk of financial strain if income decreases or interest rates rise. Financial advisers warn that stretching borrowing limits could lead to households being 'dangerously exposed' if mortgage rates remain high, wages stagnate, or property prices decline. Low-deposit mortgages also carry the risk of negative equity, where the property's value falls below the outstanding mortgage amount, making it difficult to sell or remortgage.