First-time buyers (FTBs) face paying up to £20,000 more for a property after Chancellor Rachel Reeves backed plans to loosen mortgage rules.

And research by Savills suggests house prices for FTBs in London could rise by 4% to an average of £494,122, therefore.

This follows the Chancellor’s decision to give the Financial Conduct Authority the go-ahead last week for less rigorous lending criteria for home loans, part of Labour’s attempt to loosen regulation to drive economic growth.

Demand surge

By making easier for borrowers, demand is likely to surge and this could drive prices up. Although FTBs will find it easier to secure a mortgage they may end up borrowing more, The Times reports.

Lucian Cook, Head of Residential Research at Savills, says: “Clearly it is an inevitable consequence that some of the relaxation in mortgage regulation will feed through into higher house prices, and therefore it is inevitable that it is not going to be a completely efficient measure.”

Smaller deposit

Under the relaxed mortgage rules, it may be possible to buy a house with a smaller deposit and this could ramp up demand.

Prices could then shoot up in the capital by an average of nearly £19,000, the estate agency claims. Across the UK, the changes could push prices up by 3%, which would add £7,679 to the average FTB home.

Cook told The Times: “The challenge for policymakers is to design it in such a way that that impact is minimised, and you genuinely make it easier for people to get into the property market.”

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