More Flexibility for First-Time Buyers Thanks to Policy Shift

Tuesday 5 August, 2025

First-time buyers across the UK may soon benefit from increased access to mortgage finance, thanks to a recent policy change announced by the Bank of England. This development adjusts how mortgage lenders can offer high loan-to-income (LTI) borrowing, potentially helping more people take their first step onto the housing ladder.

Published in July 2025, the Bank of England’s Policy Statement PS11/25 outlines changes to the existing LTI framework, which are expected to give lenders, particularly smaller firms, greater room to support well-qualified applicants, without compromising financial stability.

High LTI Mortgages Explained

When you apply for a mortgage, one of the key factors lenders assess is your income. A high loan-to-income mortgage is one where the loan exceeds 4.5 times the applicant’s gross annual income. For example, a person earning £40,000 a year would be considered for high LTI borrowing if they applied for a mortgage over £180,000.

These types of loans have been regulated for over a decade to ensure that people don’t borrow more than they can comfortably afford. Under existing rules, lenders are limited to issuing no more than 15% of their new residential mortgages at these higher income multiples.

What’s Changed and Who Will Benefit?

As of 11 July 2025, the threshold at which this 15% restriction applies has been raised. Previously, any lender issuing over £100 million in residential mortgages per year was bound by the cap. Now, only those issuing more than £150 million annually fall under this rule. This adjustment brings the policy more in line with the current scale of the mortgage market and enables smaller lenders to operate with greater freedom.

This is good news for first-time buyers, especially those who have stable incomes but are struggling to save a substantial deposit or secure a large enough mortgage under tighter criteria. By easing the restrictions for smaller lenders, the Bank of England hopes to increase competition and improve access to mortgage products for a wider range of applicants.

A Healthier Mortgage Market

According to the Bank of England’s July 2025 Financial Stability Report, the proportion of high LTI mortgages issued stood at 9.7% in the first quarter of the year. That figure is expected to rise to around 11% later this year, which still remains well below the 15% industry-wide cap.

The Bank has made clear that this modest increase does not pose a risk to financial stability, particularly as all regulated lenders must continue to conduct thorough affordability checks in line with FCA guidelines.

What Borrowers Need to Know

This policy change does not alter the affordability rules that lenders must follow. Borrowers will still need to meet stringent criteria around income, outgoings and credit history, and mortgages will continue to be stress-tested against potential future interest rate rises.

However, the change may result in more products being made available to first-time buyers who were previously falling short under stricter loan-to-income limits. For many, this could mean the difference between renting for several more years or finally purchasing a first home.

That said, taking out a higher loan-to-income mortgage does involve long-term financial planning and commitment, and it’s important to be clear about what’s realistically affordable both now and in the future.

Why It’s Worth Getting Expert Support

Given the increased choice and complexity this new policy may introduce, speaking with a qualified mortgage adviser can be invaluable. A mortgage broker can review your financial situation, help you understand how much you can borrow responsibly, and guide you towards the right mortgage for your needs.

Joe Wicks, Mortgage Broker at Lonsdale in St Albans, Hertfordshire, commented:

“This is a welcome development for buyers who may have found mortgage criteria difficult to meet in the past. It opens the door for more first-time buyers to access funding, but the key is knowing what you can afford over the long term. At Lonsdale, we help clients take a clear, measured approach to their mortgage decisions, so they feel confident and secure in the choices they’re making.”

By working with a regulated mortgage adviser, borrowers benefit from personalised guidance that takes into account not just income and deposit size, but also individual goals and future plans.

Looking Ahead

While the Bank of England’s update doesn’t change the fundamentals of responsible lending, it does introduce more opportunity into the market, particularly for buyers looking to secure their first property. The changes give lenders room to support more applicants, while safeguarding the principles of sustainable borrowing.

If you’re thinking about buying your first home or simply want to explore your mortgage options in more detail, the team at Lonsdale is here to help. Our advisers offer advice tailored to your specific circumstances, so you can move forward with confidence.

Call our mortgage broking team in St Albans on 01727 845500 if you need personalised mortgage product advice.

Please note: As a mortgage is secured against your home, it may be repossessed if you do not keep up the mortgage repayments. This article is for information only and does not constitute advice.

Sources: bankofengland.co.uk, handbook.fca.org.uk, www.fca.org.uk