Building society Nationwide has made a huge change to its lending rules in a move which may boost first time buyers.
The firm is the first to change its borrowing criteria to allow customers to borrow up to six times their salary in order to buy a house.
Although each company has traditionally used its own slightly different wage multiplier, the general rule of thumb is that mortgage lenders will lend customers around 4 to 4.5 times their wage.
This is related to affordability, as it assumes that this is a reasonable tie to your salary that will allow you to pay back the money – it stops someone earning £20k borrowing £1M.
From today (Tuesday, September 24), Nationwide is now lending up to six times someone’s salary.
It has also cut its mortgage rates, with its five year fix reduced by 0.05 percentage points to 0.1 percentage points depending on your LTV (loan to value ratio).
It means a five year fix with a 10 percent deposit is now priced at 4.49 percent, a far cry from the highs of 6-7 percent we saw within the last few years.
Taken together it means first time buyers will have a much better chance of getting on the property ladder, as they will be able to borrow more at a lower rate.
For example, a couple earning £34,000 each will have £68,000 to use for the calculation. Taking £60,000 at four times salary would allow you to borrow £272,000, but at 6 times, it would allow for £408,000 borrowed, which makes a huge difference to what you can buy when house prices are always increasing.
