Nationwide and rivals demand right to increase mortgages for first-time buyers

Three of Britain’s biggest building societies are campaigning to be allowed to offer mortgages worth over 4.5 times a borrower’s salary.

They claim the move would help desperate first-time buyers, however there are fears it could lead to people taking on loans they struggle to repay.

The bosses of Nationwide, Skipton and Yorkshire Building Society have written to Dame Meg Hillier MP, who chairs the Commons Treasury Select Committee, in an effort to win support for the right to issue more high loan-to-income (LTI) deals.

At present, lenders are restricted by a rule that only 15% of their new mortgage lending each quarter can exceed 4.5 times income.

The banks want that cap lifted, with Skipton proposing a 20% threshold, arguing the current system is outdated and blocking thousands from getting on the property ladder.

Nationwide already offers first time buyers the option to borrow up to six times income, however access is limited.

The building society claims lifting the cap on large loans would allow it to offer mortgages to another 10,000 first time buyers a year.

Charlotte Harrison, chief executive of homes at Skipton, said: “At Skipton, we continue to recognise the growing affordability challenges facing first-time buyers.

“Adjusting stress rates alone isn’t always enough, as many would-be buyers are still impacted by the limitations the Loan to Income (LTI) cap place on our lending.

"That’s why we’re taking a more comprehensive approach by revising both, while remaining within the current cap.”

She added: “As a result of the changes we’ve made, loan sizes could increase by up to £45,000 (+16%) for a typical household earning £60k.”

The move comes as Skipton, the UK’s fourth-largest building society, is pushing ahead with new lending criteria, set to come into force on Monday.

Under the changes:

Borrowers taking out a fixed-rate deal of under five years will face a lower ‘stress test’ on affordability.

The minimum income needed to qualify for a 5.5x income mortgage is being slashed from £100,000 to £50,000.

Customers with small deposits — between 5 and 10% — will be allowed to borrow up to five times their income, if they earn at least £50,000.

Ms Harrison said: “We continue to support calls for a review of the LTI flow limit. In the meantime, as part of our commitment to supporting more first-time buyers, we’re making changes to the stress rate, lowering the income requirement to access larger loans, whilst increasing our LTI policy at 95% LTV.”

The Bank of England originally introduced the LTI cap in 2014 to rein in risky lending. But lenders argue that the financial landscape has changed and that many buyers, especially younger workers, are being unfairly shut out by old rules.

Critics, however, warn that relaxing the rules too far could fuel house price inflation and saddle borrowers with unmanageable debts if interest rates rise again.