As the demand for low deposit loans increases George Osborne gives the bank of England power to cap risky mortgage lending.

George Osborne has given the Bank of England power to limit the borrowing multiples for first time buyers, remortgage buyers and home movers in order to protect the UK property market and avoid a housing bubble.

There has been an increase in the number of mortgages requiring a 10% deposit or less and high multiples of 3.5 times for a single income or 2.75 times for joint income.

These have reached their highest level of 2.6% of the mortgage market last reach in the fourth quarter 2008.

Pressure to take action

The Chancellor has been under pressure to take action over the rising property market as prices rise more than 10% on average in the UK and 16% in London and the South East.

The Mortgage Market Review (MMR) has already introduced strict rules for lenders to check affordability for all borrowers.

Lenders are responsible to check that first time buyers, home movers and switching remortgage buyers can afford the mortgage even by taking into account their outgoings such as child care, holidays and living costs.

In contrast equity release buyers can secure fixed rate lifetime mortgages without any evidence of earnings, important for borrowers with only pension income.

There has also been suggestions from the bank of England that interest rates are likely to rise in the autumn to dampen the demand in the property market. Rates have been at a record low of 0.5% and are expected to rise by April 2015.

The governor of the Bank of England Mark Carney has said that even if interests rates were to rise it would be gradual.

Plan to build more homes

In his speech Mr Osborne announced reforms to planning laws to allow an increase in house building. These need to supply 200,000 new-build homes in the future in an urban planning revolution.

New regulations would require councils to pre-approve brownfield sites to allow the development of new-build homes, ideal for first time buyers and home movers.

These new planning permissions or local development orders (LDOs) can be applied to derelict city sites. About 90% of brownfield sites should have these orders by 2020.

There will be £5 million of funding from the treasury to assist local councils to develop the first 100 brownfield sites. Developers may also have powers to bypass councils and apply directly to central government.

What are your next steps?

Speak to our LCM mortgage advisers if you are planning to move home, buying your first home, remortgaging your existing home to a new cost effective mortgage deal or are a buy-to-let investor.

For equity release buyers our London City Mortgage brokers can recommend lifetime mortgages allowing you to receive cash from your property to repay an interest only mortgage or help maintain your standard of living as costs rise.

Learn more by using the mortgage cost calculators, equity release calculator and property value tracker chart. Start with a free mortgage quote or call us and we can take your details.

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