It opens up more opportunities for buyers, but one broker has issued a note of caution
A major mortgage provider has announced it will now lend up to six times income, not just to first-time buyers, but also to home movers and those remortgaging. But with inflation rising and the public coffers under strain, potentially resulting in more tax hikes, a mortgage broker has warned that now may not be the time for households to put further pressure on themselves.
Leeds Building Society has extended its Income Plus range to home movers and remortgagers, not just first-time buyers (FTBs). They, too, will now be able to borrow up to six times loan-to-income (LTI) rather than 5.5 times LTI.
Leeds is now offering up to six times LTI to FTBs, home movers and remortgages with a minimum household income of £75,000. It will also lend up to 5.5 times LTI to home movers and remortgagers with a minimum household income of £50,000 and FTBs with a minimum household income of £30,000.
Leeds will go as high as 95% loan-to-value (LTV) for FTBs and up to 90% LTV for home movers and remortgagers. The product will be available for new builds and self-employed applicants and will be available on a five-year fixed rate term.
Leeds Building Society director of mortgage distribution, Martese Carton, said: “We’ve supported members into homeownership for over 150 years, but our research shows that a significant number of recent first-time buyers expect to outgrow their homes far sooner than anticipated.
“The increasing price gap between first and second properties presents a real affordability challenge. Many households need just one additional bedroom, yet the step up in price can be substantial and difficult to bridge under standard income multiples.
“By expanding our Income Plus range, we’re aiming to give next steppers greater borrowing flexibility where it’s affordable to do so, supporting more sustainable home moves and helping keep the housing market flowing.”
But one broker has warned that borrowers need to tread carefully when it comes to maxing out what they can borrow.
Martin Rayner, director at Compton Financial Services, a mortgage broker, said: “This is the latest example of a lender pushing affordability further, which can be great for some borrowers, but does have its risks.”
Martin said the ability to borrow more could make a real difference in pricier areas of the country, but that people need to ask themselves whether they are happy to be locked in for five years.
He added: “Yes, greater flexibility around what they can borrow will help some buyers, especially in more expensive and sought-after areas. But moving to six times income, combined with today’s higher mortgage rates due to the war in the Middle East, means significantly larger monthly repayments.
“And there’s the small matter that you are locked in for five years at a far higher rate than you could have secured just two months ago. People really do need to go into a product like this ‘eyes wide open’.
“They need to understand that early redemption charges will be payable if they need to exit the mortgage for whatever reason. Also, if the war in the Middle East ends and rates start falling again, they will have to watch on from the sidelines for the foreseeable future, as they will be locked into a far higher rate.
“I would recommend people think very carefully about this. Just because you can access six times income doesn’t mean you should — a lower mortgage may be far more sustainable.”
Martin also cautioned that people who are spending the absolute maximum on their mortgage can be vulnerable if taxes and other household costs rise, even slightly.
He said: “Borrowers need to consider what the next five years might look like, as they will have to live with these repayments for that whole period of time. What if the Labour government increases taxes or energy bills skyrocket? Very quickly the headroom in your finances could be gone and that mortgage payment could start to feel unaffordable.
“Six times income sounds great, but your finances could be hit for six if you are impacted by costs that you cannot control. This isn’t just about getting the mortgage, it’s about being able to live with it comfortably. There’s no doubt this product will be an absolute blessing for some, but seeking advice from a broker and properly considering potential lifestyle changes with products like this has never been more important.”
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