Comment: Letting renters borrow more isn’t homebuyer lifeline Liz Truss thinks

·2-min read
 (Daniel Hambury/Stella Pictures Ltd)
(Daniel Hambury/Stella Pictures Ltd)

If you’re a London renter forking out almost half your income on rent, being denied a mortgage that could decrease your monthly housing costs on the basis that it’s “unaffordable” is bound to rankle.

With the average rent for a one-bedroom flat in London equivalent to 45.3 per cent of the average pre-tax salary in the capital, London renters are well aware that housing eats up far more of their money than standard affordability calculations deem acceptable.

And yet, somehow, they pay it. There aren’t many other options.

This scenario moves from the annoying to the absurd when these same renters then try to buy a home.

Statistics show that while more than half of current renters could afford a mortgage, only six per cent are actually able to access one because lenders will not use rental payments as proof of ability to pay a similar amount towards a home loan.

As of Monday, banks are no longer required to “stress-test” a borrower’s capacity to repay their mortgage if interest rates rise by three per cent, a measure introduced in the wake of the 2008 financial crisis in an effort to curb risky lending.

But aspiring homebuyers won’t find untrammelled finance suddenly available to them this week. Strict loan-to-income rules still apply.

As part of her pitch to be Tory leader, Liz Truss has promised to help first-time buyers by allowing rent payments as part of the affordability assessment.

While this makes a certain sense, I’m not sure that helping expose more people to more unaffordable debt will solve the conundrum.

The banks are right: spending more than half your income on housing IS unaffordable.

How about policies to combat spiralling rents and double-digit house price rises instead?

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