A HIGH street lender has made a big change to its mortgage rules that will make things easier for first-time buyers.
Loughborough Building Society has said it will start accepting applications for mortgages from people who have “blips” in their credit history.
The lender has said it will accept applications from those with “blips” in their credit[/caption]
Poor credit scores can make giving out mortgages more risky for lenders, so banks and building societies may refuse applications from people in this position.
In other cases they might be willing to lend less money or won’t give as good rates.
But the building society has said it “will accept applications up to 95% LTV where applicants have unsatisfied defaults on mail orders, utility bills, bank accounts, car insurance and telecommunications without the need to refer”.
It says it has programmed its systems to accept these cases, saying “no explanation is required”.
Harry Goodliffe, director at HTG Mortgages, said the cost of living crisis has meant minor credit blips are becoming more common.
“Loughborough’s approach is a welcome step towards more flexible, real-world lending,” he said.
“Having a blip on your credit profile in this day and age shouldn’t write you off as a bad mortgage borrower.”
Another broker said the move is a “step in the right direction”.
Mike Staton, director at Staton Mortgages, said: “The past five years, with higher interest rates and sky high inflation, have stretched household finances to the limit.
“Lenders being a bit more lenient on minor adverse is a step in the right direction considering how poorly regulated the telecomms and energy industries are.
“You only have to sneeze for them to give you a late payment or a default.”
Mortgage lenders currently have slim margins so are trying to find other ways to be competitive with one another.
For example, Santander has become the first lender to make changes to its affordability testing to allow customers to borrow up to £35,000 more.
It has reviewed its residential affordability rates and reduced them by 0.75% across the board, bringing them to the lowest level since 2022.
Struggles for first-time buyers
It comes as first-time buyers face a different barrier to getting onto the ladder.
As of April 1, stamp duty thresholds have risen again.
Stamp duty is tax you might have to pay when buying a property or a piece of land.
Before the recent stamp duty deadline, first-time buyers didn’t have to pay the tax on homes worth up to £425,000.
However the threshold has now fallen to £300,000.
Those purchasing a property who are not first-time buyers will have to pay on homes worth up to £125,000.
Before this figure had been set at £250,000.
Homeowners were also warned about more mortgage pain after inflation came in at 2.8% for February, down slightly from 3% in January but still higher than the Bank of England‘s target of 2%.
Higher inflation generally leads to higher mortgages costs, as the Bank of England typically holds or increases its base rate, which sets interest rates, to bring down inflation.
Although the Bank has made several rate cuts in recent months, it voted to maintain the base rate at 4.5% earlier this month.
Delaying further cuts spells trouble for the 1.8million homeowners whose fixed-term mortgaes – taken out in a very different climate, when rates were much lower – are approaching expiry.
Therefore the Financial Conduct Authority, which regulates financial services firms and markets in the UK, has called for lenders to tweak their lending criteria to help more people get on the property ladder.
