The amount of money first-time buyers can borrow is being reduced by tens of thousands of pounds, putting home ownership out of reach for many.
Banks are denying young home buyers the chance of locking into Britain's cheapest ever mortgages by cutting tens of thousands of pounds off the amounts first-time owners can borrow.
On Friday Santander will reduce its lending limit from five times to four-and-a-half times a first-time buyers' salary.
A young worker who earns £40,000 will see the maximum they can borrow reduced from £200,000 to £180,000.
The move follows similar restrictions last month by Barclays, which cut its limit from five-and-a-half times someone's income to four-and-a-half for all borrowers. Santander will still accept loans of five times a borrower's income for those already on the property ladder.
The reductions, which are the result of a Bank of England directive, will lock first-time buyers out of the property market just as loan rates sink to record lows for wealthier home owners.
Andrew Montlake, of mortgage broker Coreco, said: "The changes will hit buyers in London the most, and particularly first-time buyers.
"It’s a tough market – buyers need a decent deposit, with help from parents where possible, and a very high income to even stand a chance of buying a home. These changes will make it that little bit harder."
There may never next be a cheaper time to take a mortgage than over the next six months, analysts have said. Two-year fixed rates of 1.19 per cent are already available to those with 35 per cent deposits. Five-year fixed deals cost as little as 2.19 per cent for people with 35 per cent or more equity or deposit, amid a price war between lenders.
However, rising house prices have made it difficult for first-time buyers to build deposits of more than 10 per cent, brokers say.
Average prices across the UK have risen a tenth over the past year to £271,000, while in London a 15 per cent increase means the typical house costs £501,000.
A first-time buyer would need nearly £30,000 for a 10 per cent deposit on the average property. To get a mortgage for the remainder of the price, the buyer would need an income of at least £54,000 under the restrictions introduced by Santander and Barclays.
Experts said banks were responding to new Bank of England rules, introduced last October, which prevent mortgage lenders from advancing more than 15 per cent of new mortgages at high "loan to income ratios", which is seen as a debt of more than four-and-a-half times someone's salary.
By the end of the year first-time buyers are unlikely to be able to borrow more from any bank, they said.
Ray Boulger, of brokerage John Charcol, said: "The problem is that it leads to a domino effect. Once one or two [banks] cut back on lending at 4.5 times income or above, the pool of lenders in that space gets smaller. Those remaining attract a larger proportion of customers, and then they’re forced to cut back as they too approach the limit."
A spokesman for Santander said: "This change reflects our continued, prudent approach to lending and affordability and is in line with current market conditions."
Sam: 11th Feb 2015 14:27:00
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