"Relaxed lending rules will certainly change the course of travel for the housing market in the medium to long term, but there will be a strong interplay between the extent to which house prices and first-time buyer transactions increase"
- Lucian Cook - Savills
Changes to mortgage affordability rules could increase the number of first-time buyer transactions by as much as 24% over five years, according to new analysis from Savills. The firm also predicts that this shift could add between 5.0% and 7.5% to house prices over the same period.
The change follows a revision in Bank of England guidance in March, which removed the requirement for lenders to stress test borrowers at the Standard Variable Rate plus 1% when they take out fixed-rate loans shorter than five years. Several major lenders have already updated their affordability assessments, though the approaches vary by institution.
Savills suggests the revised criteria will expand access to homeownership, especially for those previously held back by stricter affordability thresholds. The analysis focuses on how lending patterns shift when stress tests are adjusted, looking specifically at how mortgage costs as a share of income behave under different rate conditions. Loan-to-income and loan-to-value ratios were kept within typical boundaries in the modelling.
The firm estimates that the relaxation of lending tests could lift first-time buyer transactions by between 14% and 24%, depending on house price growth and supply. In numerical terms, this would mean an additional 47,000 to 80,000 transactions. However, the effect on volume may be offset by rising house prices.
“Relaxed lending rules will certainly change the course of travel for the housing market in the medium to long term, but there will be a strong interplay between the extent to which house prices and first-time buyer transactions increase," said Lucian Cook, head of residential research at Savills, "The more increased borrowing capacity impacts prices, the less impact there will be on transactions.”
The firm's modelling assumes that between half and three-quarters of a buyer’s increased borrowing power will translate directly into a higher purchase price. This could allow buyers to access larger or better-located homes or contribute to house price inflation.
“Change would not be immediate, with the impact on house prices and transactions likely to take place over a period of five years," added Cook. "The current uncertain economic outlook is likely to hold back buyer confidence and willingness to take on substantially more debt in the short term.”
“But in the medium to long term, the market would feel the knock-on impact of a widening pool of buyers. This will be good news for housing delivery, but it's unlikely to be enough to allow the government to hit its housebuilding targets.”
Savills cautions that the final outcome will depend heavily on the supply of new homes. The more housing stock is added to meet rising demand, the greater the chance of transaction volumes increasing rather than price inflation absorbing the impact.
