New analysis from Mortgage Broker Tools released this week suggested that lenders are increasingly taking a tighter approach to lending to higher earners.
It found that the average maximum loan on offer to those earning above £100,000 had dropped from more than £670,000 in March to £657,000 to July. By contrast, smaller earners saw the average maximum loan on offer fall by just £2,000 over the same period.
However, brokers suggested that rather than a sign of lenders becoming reticent specifically towards higher earners, it instead demonstrated the variable approach taken to different borrowers.
A more flexible approach
Jane King, mortgage broker at Ash Ridge Private Finance, said that when it comes to larger loans, the underwriting is generally more bespoke, with underwriters given more flexibility.
She continued: “The maximum loan amount can vary between lenders quite considerably without this tickbox regime and so if one lender is a bit reticent I can do a comparison with another.
King also suggested that private banks can be a useful option when it comes to higher loans, particularly if the broker is able to present a “robust case”.
“When I get a larger loan enquiry that requires a maximum stretch on income I tend to run affordability calculations first with the more ‘generous’ lenders before deciding which one to approach,” she continued, adding that good advisers will always take the trouble to sound out lenders personally when a larger loan is required.
Rob Gill, managing director of Altura Mortgage Finance, said that he had not seen any real tightening of affordability when it comes to higher earners, noting that borrowers with an income of above £100,000 are still able to borrow five times their income.
He added: “As with most aspects of the cost of living crisis, the real impact will be on lower earners rather than those with six-figure incomes.”
AIPs are now worthless
Some brokers report that lenders are already starting to exhibit a more cautious approach to lower earners. Jamie Lennox, director of Dimora Mortgages, recounted an experience of a borrower seeing the amount a lender would offer them drop by more than £8,000 over the space of a week.
Lennox argued that the “regularly changing criteria and affordability” are making AIPs “worthless” as by the time the client submits an application, the lender’s stance may have completely shifted.
This was echoed by Mike Staton, director of Staton Mortgages, who said that brokers have to accept that the AIP they gave their client last week “probably isn’t worth the paper it is written on” given the speed of change at the moment.
Addressing borrower misconceptions
Staton said that one of the biggest misconceptions that clients tend to have is that criteria and affordability tests from lenders “remain consistent, permanently”.
“We’re having to spend an awful lot more time educating our clients about what’s going on in the background and reminding them we need to revisit figures prior to offering on a property even if they have an agreement in principle,” Lennox added.
“The worst bit is these affordability changes often slip under the radar as we rarely get notification that a lender plans to amend their affordability calculator.”
It’s no huge surprise that lenders are adjusting what they are willing to lend based on the economic situation, according to Imran Hussain, director of Harmony Financial Services, but this just emphasises the role of the adviser.
“It’s why the value of advice now is super important to educate clients,” he added.
Lender variance growing
According to Jamie Thompson, mortgage broker at Jamie Thompson Mortgages, the difference between what lenders will consider lending to any individual borrower is growing.
What’s more, this situation is exacerbated when the borrower has any debt already in place.
“Recently, I had a couple earning about £45,000 between them offered over £100,000 more lending with one lender than another. This shows the value of advice if you are trying to maximise your borrowing amount or have been told no by your own bank,” he added.
Staton agreed, adding: “While there are some high street lenders that are giving the impression that they do not want to lend at the moment, there are some that are desperate for business.”
