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High loan-to-income mortgages: new home loans could give borrowers an extra £200k

High loan-to-income mortgages: new home loans could give borrowers an extra £200k
Written by Publishing Team

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Eligible homebuyers can take out a mortgage worth seven times their salary starting today, after the Bank of England announced plans to relax lending rules in December.

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

A single applicant in a joint application can borrow up to seven times their salary if they are eligible, practice and register in one of the 14 listed professions and earn at least £25,000. Buyers must also receive a 10 percent deposit.

Occupations eligible for a mortgage are: police, firefighters, nursing, paramedics, doctors, accountants, lawyers, teachers, engineers, lawyers, dentists, architects, surveyors, and veterinarians. The reason for this is because these occupations offer a reasonable prediction of future earnings, job security and employability, Habito says.

How much can I borrow for a mortgage?

Habito’s new lending rules could increase the amount an individual buyer who earns £75,000 can pay to purchase a home by more than £200,000.

If their borrowing is restricted at 4.5 times their income, they can borrow £337,500. With a 10 per cent deposit, it will provide them with a house worth £371,250. Borrowing seven times their income would save £525,000. Adding a 10 per cent deposit would buy a house worth £577,500.

For joint applicants where one of them works in the specified professional fields and earns £25,000 and the other applicant also earns £25,000, their borrowing will be restricted to 4.5 times the combined salary, or £225,000. With a Habito One mortgage they are likely to get seven times the salary of one and five times the other, which means they can borrow £300,000.

Is a high LTI mortgage risky?

The online mortgage broker has announced improved lending standards on the Habito One Fixed Long Term Mortgage, which allows buyers to borrow at rates starting at 2.99 percent for the entire term of the mortgage.

Fixed rate mortgage borrowers usually need to return the mortgage after a certain period of time, often two, five or ten years, or find themselves slipping into their lenders’ standard variable rate, which can be costly.

Habito says it’s able to offer higher-than-loan-to-income mortgages because the loan’s interest rate is guaranteed for the life of the loan, reducing the risk of the borrower not being able to afford future payments.

Daniel Hegarty, Founder and CEO of Habito, said: “Longer mortgages and fixed rates mean that customers are completely shielded from any threat of interest rate volatility, in a way that shorter two-year or five-year mortgage fixes do not allow.

“As a lender that takes every applicant into account, we are confident that with the right criteria, and in the right circumstances, eligible clients can safely and securely increase their borrowing to purchase the home that truly fits their needs and life plans.”

Full term fixed rate mortgages are not very popular in the UK but are already popular in other countries including France, Denmark and the United States.

This is partly because British buyers are concerned about exorbitant early repayment fees to take out a mortgage within the prescribed period, for example if they need to sell their home.

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

Some mortgage brokers have expressed doubts about how many buyers will actually be offered mortgages worth seven times the income.

Mark Harris, CEO of mortgage brokerage SPF Private Clients, said: “With current regulations restricting each lender to 15 percent of applications at more than 4.5 times loan-to-income, one wonders if lenders can get the borrowing volume to really make a difference. .

While income appears to be seven times higher, will borrowers be able to reach that level once current affordability rules are enacted? Even when the value of the loan falls, borrowers do not always hit the theoretical maximums of long-term loss.

“For those with one of the listed careers, existing lenders already offer improved LTIs, so it is worth shopping around to find the best deal.”

Colin Payne of Chapelgate Private Finance points out that key workers make large retirement contributions each month, making mortgage payments larger than their paychecks unaffordable.

He said, “The irony is that it adds fuel to the fire in terms of housing prices, making the cost of ‘home forever’ more difficult for many. It sounds like a headline to increase inquiries and then offer alternative lending options, ‘Spartans to catch mackerel’, nor That could be the best outcome for buyers.”

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