Chancellor Rachel Reeves is set to unveil the most significant mortgage reforms in a decade ahead of her Mansion House speech in the City of London.
The reforms will enable first-time buyers to borrow up to six times their annual income, a substantial increase from the current 4.5 times cap that has been in place since 2014.
Under existing rules, someone earning £40,000 annually would typically be restricted to borrowing £180,000. The new regulations could allow them to borrow up to £240,000 towards their first home.
The changes follow recent recommendations from the Bank of England and the Prudential Regulation Authority's announcement enabling lenders to increase high loan-to-income lending.
Nationwide Building Society will extend its Helping Hand mortgage scheme from Wednesday, lowering the minimum salary requirement for first-time buyers from £35,000 to £30,000.
Joint applicants will need a combined salary of £50,000, down from the previous £55,000 threshold.
getty | The Government claims the reforms will create up to 36,000 additional mortgages for first-time buyers over the first year
The building society says more than 57,000 customers have used the Helping Hand mortgage since its 2021 launch, which allows eligible first-time buyers to borrow up to six times their income with deposits as low as five per cent.
Nicholas Mendes, mortgage technical manager at broker John Charcol, said: "Many would-be buyers have felt locked out of the system, not because they lack financial discipline or reliability, but because the rules haven't kept pace with the way people actually live and budget."
The Government claims the reforms will create up to 36,000 additional mortgages for first-time buyers over the first year, describing them as the "biggest financial regulation reforms in a decade".
A permanent mortgage guarantee scheme, rebranded as Freedom to Buy, will see the state guarantee mortgages to help buyers with deposits as low as five per cent.
Under the scheme, lenders will pay a fee to the Treasury to provide guarantees against potential losses on 95 per cent loan-to-value mortgages in the event of repossession.
Aaron Strutt of Trinity Financial noted: "It can be really hard for those on lower incomes to borrow anywhere near the amount they need to buy a home, even if they have a large deposit."
Industry experts have welcomed the potential benefits for key workers and young professionals who often face challenges accessing homeownership despite stable employment.
Nick Mendes of John Charcol said: "Many in sectors such as care, education, or retail may find this sort of targeted product makes homeownership feel more achievable."
NATIONWIDE BUILDING SOCIETY | Nationwide Building Society says more than 57,000 customers have used the Helping Hand mortgage since its 2021 launch
However, concerns remain about long-term affordability, particularly if interest rates rise or borrowers' circumstances change.
David Hollingworth of L&C mortgages warned: "Whilst these are necessary solutions for aspiring buyers struggling to borrow enough to meet high purchase prices, it's important that the focus on improving the supply of new homes continues as well.
"He added: "Otherwise, there's a risk that boosting borrowing limits could only serve to push prices higher."
Financial Conduct Authority chief executive Nikhil Rathi warned in January that "things are going to go wrong" by relaxing lending regulations.
GETTY | The warnings come despite Reeves pressing ahead with the changes
He cautioned that "not everybody is going to play completely by the rulebook", adding that increased risk would ultimately raise the likelihood of repossessions.
Rathi said: "When the mortgage charter came in last year, pretty much every major party said keep repossessions down, and we did. That is not consistent with relaxing the lending standards."
A minister said it was important that the Government does not “go too far” as it unveils plans to cut red tape around mortgages.
Asked about whether it was right to allow greater borrowing in light of the financial crisis, roads minister Lilian Greenwood told Sky News: “It’s really important that we get this right and don’t… go too far.”
She said it was “important it’s done in a sustainable and sensible way” whereby buyers are “confident of being able to… continue making those payments.”
The warnings come despite Reeves pressing ahead with the changes, which she will describe as creating a country that is "active and more confident" with a "better-off" economy.
The Chancellor will insist that financial services is "at the heart of the Government's growth mission", recognising that Britain cannot meet its growth ambitions without a thriving financial sector.