High Credit-to-Income Mortgages: New home loans could bring borrowers an additional £ 200,000
Pleasant homebuyers could get a seven times salary mortgage starting today after the Bank of England announced plans to ease lending rules in December.
To qualify for the higher credit-to-income loan, applicants must have a base salary of Â£ 75,000 or more per year.
An applicant on a joint application can borrow up to seven times their salary if they are qualified, practiced and registered in any of the 14 professions listed, and making a minimum of Â£ 25,000. Buyers must also have a 10 percent deposit.
The professions eligible for the mortgage are: Police, Fire Brigade, Nursing, Paramedics, Doctors, Accountants, Lawyers, Teachers, Engineers, Lawyers, Dentists, Architects, Surveyors, and Veterinarians. According to Habito, this is because these occupations provide a reasonable prediction of future income, job security, and employability.
How much can I take out for a mortgage?
Habito’s new lending rules could add more than Â£ 200,000 to the amount a single home buyer on an income of Â£ 75,000 could afford.
If their borrowing were capped at 4.5 times their income, they could borrow Â£ 337,500. With a 10 percent deposit, that would give them a home worth Â£ 371,250. Borrowing seven times their income would offer Â£ 525,000. Add the 10 percent down payment and you would buy a home worth Â£ 577,500.
Joint applicants where one is working in the specified occupations earning Â£ 25,000 and the other applicant is earning Â£ 25,000 as well, their borrowing would be limited to 4.5 times the combined salary, or Â£ 225,000. With the Habito One mortgage, they could potentially get seven times one salary and five times the other, which means they could borrow Â£ 300,000.
Is a Higher LTI Mortgage Risky?
The online mortgage broker announced the expanded credit criteria for its Habito One fixed-term mortgage, which allows buyers to borrow at rates as low as 2.99 percent for the life of their mortgage.
Fixed-rate mortgage borrowers typically need to reschedule after a certain amount of time, often two, five, or ten years, or they may slip to their lender’s standard floating rate, which can be expensive.
Habito says it can offer the higher loan-to-income mortgages because the interest rate on the loan is guaranteed for the life of the loan, which reduces the risk that the borrower will not be able to make payments in the future.
Daniel Hegarty, founder and CEO of Habito, said: âLonger fixed-rate mortgages mean customers are completely protected from the threat of interest rate fluctuations, so shorter terms of two or five years mortgage contracts do not allow this.
âAs a lender who looks at the individual case of each applicant, we are confident that eligible customers with the appropriate criteria, in the right circumstances, can safely increase their borrowing to buy the home that truly suits their needs and life plans. â
Full-term fixed rate mortgages are not common in the UK but are already popular in other countries such as France, Denmark and the US.
One of the reasons for this is that British buyers fear high prepayment penalties in order to get out of a mortgage during the specified term, for example if they have to sell their house.
Do I get a mortgage for seven times my salary?
Some mortgage brokers have expressed doubts as to how many buyers would actually be offered mortgages at seven times the income.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said, “Given current regulations that limit any lender to 15 percent of applications above 4.5 times credit-to-income, one wonders if lenders do that Volume of borrowing can really make difference.
âAlthough seven times the income sounds high, will borrowers be able to reach this level once the existing affordability rules come into effect? Even with lower loan-to-value ratios, borrowers do not always meet the theoretical LTI ceilings.
“Existing lenders are already offering extended LTIs for those with one of the professional careers listed, so it’s worth looking for the best deal.”
Colin Payne of Chapelgate Private Finance pointed out that key employees pay substantial pension contributions each month, which can make larger mortgage repayments from their home wages unaffordable.
He said, “The irony is that it fuels the fire in terms of house prices, making this ‘forever home’ more unaffordable for many. It feels like a headline about increasing inquiries and then offering alternative credit options, a ‘sprat to catch a mackerel’ and that may not be the best outcome for buyers. “