new home loans could give borrowers an extra £ 200,000


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Qualifying homebuyers could get a mortgage worth seven times their salary today, after the bank of england announced plans to ease lending rules in December.

To qualify for the higher loan, applicants must have a base salary of £ 75,000 or more per year.

An applicant in a joint application can borrow up to seven times their salary if they are qualified, practicing and enrolled in one of the 14 listed occupations and earning a minimum of £ 25,000. Buyers must also have a 10 percent deposit.

The professions eligible for the mortgage are: police, firefighters, nurses, paramedics, doctors, accountants, lawyers, teachers, engineers, lawyers, dentists, architects, surveyors and veterinarians . Habito says it’s because these occupations offer a reasonable forecast of future earnings, job security, and employability.

How Much Can I Borrow for a Mortgage?

Since the interest rate stress test was introduced in 2014 To ensure that borrowers could afford to pay off their mortgage if interest rates rise, most lenders will only offer a maximum loan-to-income ratio of 4.5 times income. This made buying a home even more inaccessible for many buyers, especially in London where the an average property costs 11.7 times the average wage.

Habito’s new lending rules could increase the amount an individual home buyer earning £ 75,000 could afford to pay for a home over £ 200,000.

If their borrowing was capped at 4.5 times their income, they could borrow £ 337,500. With a 10% down payment, that would get them a home worth £ 371,250. Borrowing seven times their income would offer £ 525,000. Adding the 10 percent deposit would buy a home worth £ 577,500.

For co-applicants one of whom works in the specified professional fields and earns £ 25,000 and the other applicant also earns £ 25,000, their borrowing would be capped at 4.5 times the combined salary or £ 225,000. With the Habito One mortgage, they could potentially get seven times a salary and five times the other, meaning they could borrow £ 300,000.

Is a higher LTI mortgage risky?

The online mortgage broker announced improved lending criteria for its Habito One full-term fixed-rate mortgage, which allows buyers to borrow at rates starting at 2.99% for the life of their mortgage.

Borrowers on a fixed rate mortgage typically have to remortgage after a certain period of time, often two, five, or ten years, or find themselves slipping on their lender’s standard variable rate, which can be costly.

Habito says he is able to offer the highest loan-to-income ratio mortgages because the loan interest rate is guaranteed for the life of the loan, which reduces the risk that the borrower will not be able to pay in the future.

Daniel Hegarty, Founder and CEO of Habitito, said: “Longer fixed rate mortgages mean that customers are completely protected against any threat of fluctuating interest rates, in a way that shorter mortgage contracts two or five years do not allow.

“As a lender who reviews each applicant’s case individually, we are confident that with the right criteria in place, under the right circumstances, eligible clients can safely increase their borrowing to purchase the home that truly matches their needs. needs and their life plans. “

Full-term fixed rate mortgages are not common in the UK, but are already popular in other countries including France, Denmark and the US.

Part of the reason is that UK buyers are worried about the high prepayment charges for getting out of a mortgage during the set period, for example if they have to sell their house.

Will I be able to get a mortgage at seven times my salary?

Some mortgage brokers have expressed doubts about the number of buyers who would actually be offered mortgages at seven times their income.

Mark Harris, managing director of mortgage broker SPF Private Clients, said: “With current regulations limiting each lender to 15% of claims over 4.5 times the loan-to-income ratio, one wonders if lenders can get the volume of borrowing to really make a difference.

“While seven times income seems high, will borrowers be able to reach that level once the existing affordability rules are adopted? Even at lower loan-to-value ratios, borrowers do not always meet notional LTI ceilings.

“For those with any of the business vocations listed, existing lenders already offer enhanced LTIs, so it’s worth shopping around for the best deal. “

Colin Payne of Chapelgate Private Finance pointed out that key workers pay large pension contributions every month, making mortgage payments larger than their take-home pay potentially unaffordable.

He said: “The irony is that it adds fuel to the fire in terms of housing prices, which makes this ‘forever home’ more unaffordable for many. It sounds like a headline to increase inquiries, then offer alternative loan options, a “sprat to catch a mackerel”, and that may not be the best outcome for buyers. “

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