Many are expecting or at least hoping to borrow much more than many lenders are willing to offer.
This poses a number of challenges for brokers. We don’t want to build up clients’ hopes too much, but equally we shouldn’t put them off making an offer on their dream home when there are lenders who could make that dream come true.
At BrokerSense, we are active brokers, so we understand the frustrations and we are all about making brokers’ lives easier.
The affordability calculators we have developed use criteria from 50 mainstream lenders and 75 buy-to-let lenders to generate instant affordability reports. We’ve looked at the data we’ve collected from broker searches to give a clearer idea of where the market is at the moment.
Using this broker search data, the overall mean income multiple is just 3.4. On that basis, a household bringing in £28,400 a year – the UK median household income in 2018 – would expect to be able to borrow a little over £85,000. In today’s housing market, that doesn’t go very far.
However, the picture is not quite that simple, as some very high multiples are available lower down the income range: up to a whopping 9.25 times income in some cases.
So lower incomes need not be a barrier to climbing the property ladder. The vast majority of lenders, however, reduce their multiple as the total income increases.
While many lenders are prepared to offer more than four times income to households earning up to £26,500, the multiple falls to less than three for those in the highest income bracket of £96,500-£101,500.
Furthermore, almost all lenders gave slightly higher income multiples to first-time buyers than to those moving home or remortgaging an existing property.
Perhaps more importantly, this masked a wide variation in the highest and lowest multiples within each of these categories, with one lender offering 4.3 times income on average for first-time buyers, compared with an average of just 2.85 times for the lowest lender in this category.
A number of lenders also showed significantly lower multiples for those with very low loan-to-value ratios of below 30 per cent.
This may be explained by the sort of households making applications of this sort: typically, those moving home or remortgaging later in life when incomes and established equity are higher, and loan amounts lower, rather than cash-strapped first-time buyers.
A broad brush analysis of this sort can’t give the full picture, but affordability reports give exact answers in just minutes.
By highlighting some of these findings, we hope to help brokers manage their clients’ expectations by giving them a better idea of what sort of offers might be available.