Brokers are seeing a more relaxed attitude from lenders towards higher loan to income (LTI) ratios, as buyers struggle with affordability following years of house price growth outstripping wage rises.
Prudential Regulation Authority (PRA) rules state that mortgages with an LTI of more than 4.5 can’t make up more than 15% of lenders’ overall new loans.
But it appears that within the portion of higher LTI loans, lenders are willing to offer relatively higher value loans.
At least one provider is now offering a limited amount of lending at up to six times income at up to 85% loan to value (LTV), according to reports from brokers.
It comes as the average LTI to first-time buyers reached 3.64 in November last year, up from 3.54 a year earlier, according to the latest UK Finance data.
And home movers’ typical LTI has jumped to 3.41 from 3.27, over the same time period.
Mark Harris, chief executive of SPF Private Clients, said: “It is not surprising that higher income multiples are on the rise given that the long-term trend for property prices is upwards and with salaries failing to keep pace.
“Furthermore, with rates still at historic lows, borrowers maybe tempted to borrow more to take advantage of cheap rates.”
Andrew Montlake, director at broker Coreco, added: “I think lenders are becoming more comfortable with the way they assess affordability and so income multiples as such are becoming less important, however many are still uncomfortable going over 4.5 or 5 times income.
“With the 15% rule still in place it does not look like there will be any fundamental changes to this any time soon.”
Affordability the biggest factor
Affordability is still the key factor and much depends on the individual circumstances of an applicant, according to David Hollingworth, from broker London & Country.
For example, lenders are typically offering higher LTI multiples when the LTV is low or the applicant has a high income level.
Hollingworth said: “People have to stretch to make that purchase, therefore they are pushing to the outer remits of affordability rather than sitting on more affordable income multiples.
“Lenders may offer as much as five times income but a borrower may not be able to get close to that because of their circumstances.
“Affordability is overarching principle rather than set LTI multiples.
“But if it is affordable why should there be a cut-off – for example, if someone has a huge amount of disposable income?”
Harris added: “Many lenders have LTI caps or lower LTIs for certain borrowers who are regarded as being riskier than others, such as first-time buyers, on higher loan-to-values, Help to Buy and those on lower incomes so risk will be limited to an extent.”