Savills said many lenders had already adjusted their affordability rules, due to confirmation from the regulator that they did not need to stress test borrowers at a minimum of 1% above the standard variable rate (SVR) on fixed rates shorter than five years.
It looked at scenarios where 50% or 75% of the additional mortgage loan accessed by a borrower would be added to the property purchase price, allowing someone to either buy a bigger or better home or cover any rises in house prices.
Savills suggested that applying a stress test of 7% instead of 8.25% to a first-time buyer earning £62,000 and buying a house worth £260,000 would increase their borrowing capacity by £25,900 or 12.8%.
In the scenario that half or £12,950 of the additional loan goes towards the purchase price, this would result in a 5% increase in the value. The loan to value (LTV) would also rise from 77.7% to 83.5%, while the average deposit would fall from £58,000 to £45,000.
Based on these figures, Savills suggested this could increase the number of mortgaged first-time buyers from 340,000 to 420,000, representing a 24% rise.
Your Mortgage Awards 2024/25: winners revealed
Sponsored by Your Mortgage Awards
In the scenario that 75% of additional borrowing is passed on to house prices with a 7% stress rate, the extra £19,425 would go to the purchase price, lifting house prices by 7.5%.
The average LTV would rise from 77.7% to 81.6%, while the typical deposit would fall from £58,000 to £51,500.
This would lead to a 14% increase in first-time buyer mortgages, rising from 340,000 to 387,000.
Savills said any increases in house prices would also depend on how much new housing was delivered to meet demand.
Based on the historical relationship to LTV ratios and activity levels, stress tests could lead to over 47,000 more first-time buyer transactions in a higher house price growth scenario or over 80,000 with lower growth.
This would be between 14% and 24% higher.
Savills said this would also lead to house prices rising by an extra 5-7.5% on top of existing five-year forecasts.
Lucian Cook, head of residential research at Savills, said: “Relaxed lending rules will certainly change the course of travel for the housing market in the medium to long term, but there will be a strong interplay between the extent to which house prices and first-time buyer transactions increase. The more increased borrowing capacity impacts prices, the less impact there will be on transactions.
“Change would not be immediate, with the impact on house prices and transactions likely to take place over a period of five years. The current uncertain economic outlook is likely to hold back buyer confidence and willingness to take on substantially more debt in the short term.”
He added: “But in the medium to long term, the market would feel the knock-on impact of a widening pool of buyers. This will be good news for housing delivery, but it’s unlikely to be enough to allow the government to hit its housebuilding targets.”
