HSBC raises income multiple to 5.5 for high-earning borrowers
The update will come in on Monday. It is up from five times income borrowers in this bracket were previously able to borrow.
Over the course of this year, a number of lenders have increased the income multiples for those on higher salaries.
This included Metro Bank which widened borrowing limits for those earning more than £100,000 to five times their income. Barclays also adjusted its limits, allowing customers with a gross income of £75,000 to borrow up to five times their income. This was a similar move to Ipswich Building Society, which raised multiples to 5.5 for those earning £75,000 and more per year.
Speaking to Mortgage Solutions, HSBC said despite the change it would still look at all applications individually to ensure affordability is met.
Tipton and Cosley BS raises 95 per cent LTI
This will be available to both joint and individual borrowers applying for discount and fixed rate purchase mortgage products.
The 95 per cent LTV two-year discounted deal has an initial rate of 3.64 per cent. The three-year fixed mortgage is priced at 3.89 per cent.
Both products have a minimum loan size of £150,000 and maximum loan size of £300,000 and come with an arrangement fee of £999.
Jason Newsway, sales and marketing director at the Tipton, said: “These latest criteria changes are designed to help provide more options and flexibility for high loan to value borrowers.
“The Tipton remains committed to supporting borrowers at all stages of their life and this latest affordability change is designed to help those seeking a 95 per cent LTV mortgage.”
Coventry BS increases LTIs for high LTVs and updates bonus policy
The changes will be effective from today and pipeline applications will be switched onto the new criteria.
The mutual will also now accept annual bonuses of 50 per cent of the average two years’ bonus income, or 50 per cent of the most recent year’s annual bonus income, if the two-year amount is lower.
Additionally, 50 per cent of regular bonus payments will be accepted for affordability assessments and three-month accounts must be provided to show a consistent level of earnings.
Jonathan Stinton (pictured), head of intermediary relationships at Coventry Building Society, said: “Increasing the income multiples and allowing more flexibility on bonuses will increase the options available to those clients who want to get onto the property ladder.
“Building up a deposit for a mortgage is one of the bigger challenges facing buyers and this has been made all the more difficult with such strong market demand and rising property prices.”
He added: “We’ve consistently supported the market at higher LTVs and these extra measures will help to broaden the choices for those with smaller deposits who are looking to buy now.”
Low deposit borrowers still up to £175k short of average property prices
Considering current property prices and income data, a five per cent deposit would leave the average purchaser as much as £175,246 short on their home based on the maximum amount most lenders are willing to give.
Earlier this year, a raft of lenders tightened loan to income (LTI) multiples for borrowers on lower incomes to around four or 4.5 times income. This was also restricted for those requiring mortgages above 80 per cent LTV.
The recent wave of 95 per cent LTV mortgages has been no different and includes criteria that allows maximum income multiples of no more than 4.75.
The most generous LTI is 4.75 times income which is being offered by Skipton Building Society and is available to all buyers including first-timers.
Atom Bank will also lend up to 4.75 times income for borrowers with a single or joint income of £100,000 or more. For single or joint incomes under £100,000 the digital bank will only lend up to 4.5 times income.
Other lenders that have launched 95 per cent LTV mortgages both with and without the government’s scheme have capped LTI at multiples between four and 4.5 times their income.
Statista puts the average age of an English first-time buyer living outside of London at 32, while those in the capital buy their first homes at the age of 34.
Its data also says the average salary for men in the UK aged between 30-39 is £34,567 while for women, it’s £30,258.
Based on LTI multiples for 95 per cent LTV mortgages, the average man buying his first property on his own would be able to borrow up to £155,551 and a woman would receive up to £136,161 with an LTI of 4.5.
According to Rightmove, the average asking price of a home in the UK currently stands at an all-time high of £327,797.
This means a five per cent deposit of £16,389 combined with borrowing the maximum £136,000 would leave female buyers £175,246 short on the £311,407 needed to make up the shortfall.
Male purchasers would be down £155,856.
Looking at properties worth the average price paid by first-time buyers in March, reported as £203,564 by Rightmove, purchasers will still need to earn at least £45,000 either on their own or as joint borrowers to get a 95 per cent LTV deal.
Considering the maximum borrowing amount of £164,193 for a single purchaser, the North East would be the only affordable region with an average property price of £161,994.
Halifax offers the cheapest two-year fixed 95 per cent LTV, priced at 3.73 per cent. Putting down a five per cent deposit in the North East would mean monthly repayments of £789.55.
The cheapest five-year fix is offered by Coventry Building Society and priced at 3.99 per cent. For the same property in the North East, monthly repayments would be £803.
Chris Sykes, associate director and mortgage consultant at Private Finance, said this was not a new problem as prices had outstripped affordability for years.
He said this was also not just an issue at the upper 95 per cent LTV lending tier but added that banks being more “stringent” to higher risk loans made it more prevalent.
He added: “It is incredibly hard at any loan to value for a single first-time buyer to get a home unless you are living somewhere with much below the average property values or they have much higher than average income.
“It often is not possible for the average person to get the average property, either they have to settle for less or cannot get anything at all.”
Mark Robertson, partner at Chadney Bulgin said assessments were based on the regulator’s view of affordability.
He said although underwriters did factor in estimated and actual costs, they did not always consider potential individual circumstances.
“Some of these buyers will have rented and may well have been paying higher rents. I don’t think it’s a fair reflection.
“It should be true affordability of the individual. A single person on £34,000 might have more disposable income than a couple with a child,” he added.
End of the single buyer?
Robertson said these restrictions could lead to fewer people buying on their own and choosing to purchase with a partner, family member or even friends.
Based on the average pay figures, a joint application with mixed gender applicants with a combined income of £64,825 could borrow up to £307,918 on a 4.75 income multiple.
Two women could be able to borrow up to £287,451 while a lender could offer two men as much as £328,386. In this scenario, two male applicants could potentially afford a property at the current average price as stated by Rightmove.
However, this will depend on differing lender criteria.
For example, Buckinghamshire Building Society will either loan up to 4.5 times the first income plus 3.5 times the second income or will lend four times the joint income. TSB caps income multiples at 4.25 for applications where any borrower is self-employed.
Robertson also questioned whether people living in areas with lower property prices would be making salaries which would allow them to borrow enough to purchase.
According to Payscale, the average salary in the region with the most affordable property prices is £27,000. On an income multiple of 4.5, this would put the borrower’s maximum potential at £128,250, which falls short of the North East average property value by £33,744.
A borrower here would actually need a 21 per cent deposit of £34,018 to make up the difference, rather than a five per cent deposit of £8,099.
More options for buyers
Rachel Dixon, mortgage adviser at RH Dixon, agreed that affordability constraints even for the cheapest properties was an ongoing issue.
However, she said it was still a positive to see more options on the market at 95 per cent LTV as people would “at least have a shot at buying if they meet all other criteria”.
Adam Wells, co-founder of Lloyd Wells Mortgages, said the same as many of his clients were disappointed to find they would need to double their deposits when 95 per cent LTV mortgages disappeared last year.
He also said the low borrowing power would not necessarily be an issue for most first-time buyers.
“Although the average house price is £327,797, most first-time buyers aren’t looking to buy a three-bed property and will only be in their first home for a few years. Their buying power will improve if they are able to purchase with a partner, friend or sibling.
“It can also open up the conversation to other ways of purchasing such as the Help to Buy scheme, shared ownership and shared equity. Anything that can be done to help more people purchase their first home has to be a good thing,” Wells added.
Loan to income changes could shut first-time buyers out of 95 per cent market – analysis
The long-awaited return of more low deposit mortgages has coincided with LTI changes. This includes Halifax, Virgin Money and Platform restricting income multiples for the self-employed, those using Help to Buy, those earning less than £30,000 or those borrowing above 75 per cent LTV.
At the same time, Accord, Barclays and Ipswich Building Society have all loosened maximum LTIs for borrowers with incomes above £60,000 by allowing them to borrow as much as 5.5 times their income.
First-time buyer and self-employed shut-out
Coupled with higher rates at upper LTV bands, Adrian Anderson, director of Anderson Harris said tightened LTIs could mean the mortgage market would not recover some of the business lost from first-time buyers last year.
Data from Reallymoving showed the first-time buyer market contracted by 12 per cent last year as home movers and investors took a share of business activity while taking advantage of the stamp duty holiday.
He said: “It will feel like they’re continuing to be punished. Those already on the ladder have likely benefitted from an increase in capital anyway, so maybe their income multiples don’t need to be so high.
“For people trying to get onto the ladder and find a place they would like to live in, they will be in a position where even if they have a good income or two decent incomes, the increases in house prices mean they will still be paying a higher rate than someone who’s already on the ladder.”
Anderson also said the volatility of self-employed incomes would make the process more “challenging”.
“With some lenders it’s so critical how your last three of months trading went. You might have some self-employed applicants whose turnover is quite lumpy.
“Quite often, when it comes to submitting applications for self-employed clients a lot of it comes down to the timing and whether they’ve had a good three months. If income multiples are lower and more questions are asked, it will be difficult for them,” he added.
The haves and the have-nots
Anderson said this proved the mortgage market was still weighted towards those who had more income and higher deposits, despite messages that help was available to borrowers with less capital.
He said: “It’s all about the haves and the have-nots. Clients with bigger deposits will be at lower LTVs, so can get cheaper rates at 1.2 per cent or so, and with higher incomes can borrow up to 5.5 times loan to income.
“But if you don’t have those things, you borrow 4.5 times your income and your interest rate will start with a three.”
95 per cent LTV pricing
While the re-introduction of 95 per cent LTV mortgages has been widely welcomed by the industry, the brokers acknowledged the overall costs of borrowing could turn some away from the products.
David Hollingworth, associate director of communications at London and Country, said the pricing of 95 per cent LTV products could mean those with applicable deposits will need to rethink plans or turn to family help to close the borrowing gap.
“We’ll have to wait and see what people have to pay [at 95 per cent LTV] and whether they’re prepared to pay that or if they would prefer to save for a bigger deposit,” he added.
He said: “Throughout last year, borrowers would have thought ‘I need a 15 per cent deposit’ so they may have already been pushing hard to get that.
“The emergence of 90 per cent LTVs would have helped and 95 per cent LTVs will help too. But recent changes to criteria will mean for some borrowers, delaying the purchase to increase their deposit might be of more benefit to them.”
Hollingworth went on to say he was waiting to see how the 95 per cent LTV product pricing would take shape as the return of 90 per cent LTVs helped to “sharpen some rates up”. However, he added it might take time to see similar momentum for those with five per cent deposits.
Jonathan Clark, mortgage and protection planner at Chadney Bulgin, said: “While we’re yet to see details of any of the new 95 per cent LTV products, the expectation is that LTIs could be anywhere between 4 to 4.5 times income and rates will be at least 3.5 per cent.
“I don’t expect product fees to be any higher than 90 per cent LTV products – some may even be fee-free – as this would potentially only increase a lender’s exposure to little or no equity in the future.”
Clark said he understood lenders were “shying away” from complex borrowers such as the self-employed or those with unconventional incomes as they take longer to underwrite and are perceived as being higher risk.
However, he said lenders still needed to “adapt accordingly” with product offerings and criteria as these groups were accounting for an increasing proportion of the UK workforce.
Negative equity concerns
With average house prices at record highs and exceeding £250,000, Clark said this was the first time in a long time he had been genuinely concerned about negative equity.
He suggested stricter criteria, rates and LTIs could make borrowers think twice about purchasing a house right now.
Clark added: “Buying a property has always been a major financial decision for anybody but now more than ever, people really need to consider it as a long-term home buying decision, as opposed to a short-term investment one.”
Hollingworth said the difficulties for some to get a mortgage could be a blessing in disguise and added: “People need to always understand it’s not a given that house prices will keep rising.
‘Increasing LTIs where prudent would help more first-time buyers’ – Marketwatch
But with house prices reaching all-time highs, even those who have raised more than the minimum amount needed for a deposit can still be shut out if their income does not allow them to borrow enough for the property of their choice.
So, this week, Mortgage Solutions is asking: Would increasing loan to income (LTI) multiples up to a certain value be more beneficial for first-time buyers? And, do low deposit schemes create too much reliance on government intervention?
John Phillips, national operations director of Just Mortgages and Spicerhaart
Increasing loan to incomes where prudent would certainly help more first-time buyers get onto the housing ladder.
While it is difficult for first-time buyers to save a 10 per cent deposit, another hurdle they currently have to overcome is the fact they are treated differently to other clients.
While it is hard to say whether it would be more or less beneficial than the government-backed 95 per cent loan to value (LTV) mortgages, it certainly would help more people onto the ladder.
The best way to support first-time buyers is for lenders to treat them like other clients.
While we understand there are regulatory restrictions for lenders, affordability is a better indicator of risk. By assessing affordability, rather than using strict loan to income multiples, lenders can accurately assess each situation individually.
This will take into account an applicant’s full circumstances, not just whether they are a first-time buyer. Then, lenders can increase LTI for clients who can afford it, not just those who are already on the housing ladder.
Rates for these increased LTI products should still be the same, as if the affordability checks demonstrate the client can afford the product, it wouldn’t be fair on customers to make them pay more.
While some may feel increasing loan to income multiples may be a risky move, this doesn’t necessarily have to be the case.
If lenders are assessing affordability, then it would actually be prudent of them to increase loan to income multiples for certain cases.
Rupi Hunjan, CEO and founder of Censeo Financial
I think you need a mixture of both because you can have a low deposit, but the income still will not meet everyone’s requirements.
Now, people are elated at the fact they can have a low deposit but if the income multiple doesn’t work then they still can’t buy a house. The fact they have a low deposit is just one part of getting a mortgage.
The income multiples and stress tests are important as well as it still has to be responsible for lenders and fit within their criteria.
The 3x or 4x loan to income multiple is just a rule of thumb, but overall affordability will always need to be primarily based on the debt-to-income ratio.
Existing schemes do not make people with low deposits or incomes more reliant on government intervention because that has always been there.
The housing market has been overwatered politically, economically and socially. There always seems to have been some sort of government assistance.
We had the mortgage indemnity guarantee in the past and more recently of course, the Help to Buy and the 95 per cent loan to value (LTV) mortgage guarantee scheme.
Much of this support is there because of inflation and house price rises. Maybe if there was never any government intervention in the first place and we had a pure market, we would not be in a position where some people need additional help.
But because we have never had a pure market, government help is always needed.
Richard Campo, managing director of Rose Capital Partners
From my perspective, the issue is far more about deposit levels than income multiples.
Our clients are predominantly in London and the south east of England and a typical first-time buyer has to spend around £500,000 or more on their first property.
With lenders favouring people with a 15 per cent deposit or more, that simply freezes out clients who don’t have that amount of money or can’t rely on family to help them.
If you use that as an example, being able to buy with a five per cent deposit or £25,000 is far more achievable than a 15 per cent deposit or £75,000. A mortgage is typically cheaper than what people are paying in rent, so opening up the small deposit market to new buyers is a great thing as the income is rarely the issue.
Lenders only pulled out of this area of lending due to fears of a house price crash following Covid-19, then they have been cherry picking the lowest risk clients ever since due to a lack of capacity that lockdown and other restrictions have created for them.
I don’t blame them for that, but it hampers the market if you freeze out first-time buyers.
I don’t agree that you should raise LTIs for first-time buyers though. I feel that affordability works on simple curve – the more you earn, the more you can afford to borrow.
Once you have cleared your utilities, food and essential costs, which are broadly the same for everyone, higher earners simply have a greater capacity to borrow more.
Pushing bigger loans on lower earners I feel would be recipe for disaster. I strongly suspect any government-backed guarantee will cap LTIs at 4.5 times income for that reason.
Virgin Money extends 90 per cent LTV availability and tightens LTI
The bank came back into the 90 per cent LTV space in December with a five-year fix before adding more options this year.
The two, five, seven and ten-year fixes are no longer restricted to first-time buyers and the maximum property value Virgin will lend on has increased to £500,000.
Additionally, maximum mortgage terms at this tier have been extended from 25 to 30 years. Virgin Money will not lend to flats, maisonettes or new-build properties at 90 per cent LTV.
Virgin Money has also made significant changes to its affordability criteria.
The lender has tightened its loan to income (LTI) cap for all lending above 80 per cent LTV, reducing it to 4.49 times income.
However, this excludes remortgage applications with no additional lending, and its existing loan-to-income cap of 4.49 times income where the LTV is more than 85 per cent remains in place.
At the same time, it will increase the maximum LTI for all interest-only and part-and-part applications to 4.49x.
And in addition to basic pay, 100 per cent of pension and allowable benefit income will be used in the LTI calculation.
The changes come into effect on 4 March and follow revisions of Clydesdale Bank’s loan to income cap on self-employed applicants.
Clydesdale Bank and Skipton BS introduce LTI caps
The changes will see self-employed borrowers join those needing loans above 85 per cent loan to value (LTV) and borrowers with incomes lower than £50,000. Applicants outside of this criteria will still be allowed to borrow up to five times their income.
All self-employed income, 100 per cent of the pension and allowable benefit income will be included in the LTI calculation.
The change will not affect day rate contractors who meet the bank’s contractor criteria.
Applicants already in the pipeline will not be affected but cases submitted after 8pm on 3 March will be assessed using the new policy.
Skipton Building Society has capped LTI for applicants with borrowing needs above 85 per cent LTV to 4.49.
This will apply from tomorrow and pipeline or decision in principle cases will not be affected by the changes.
All other LTI criteria remains the same with Help to Buy and shared ownership mortgages at 4.5 and applications below 85 per cent LTV at 4.75. For applicants with a household income lower than £40,000, the maximum LTI is 4.45.
NatWest and Halifax cut rates; Platform caps maximum LTI – round-up
Two-year fixed purchase mortgages have seen rates cut up to 10 basis points. The fee-free product at 85 per cent loan to value (LTV) has dropped from 2.93 to 2.83 per cent. The fee-free offering at 90 per cent LTV has decreased from 3.48 to 3.43 per cent.
Remortgaging borrowers fixing for two years have seen rate reductions. These include the £0 fee product at 75 per cent LTV, on which rates have reduced by 11 basis points to 1.78 per cent.
At 90 per cent LTV, two-year fixed remortgages have seen cuts of 0.15 per cent to, respectively, 3.24 per cent and 3.44 per cent for the £995 paying and fee-free products.
For borrowers fixing for five years, the fee-free purchase product at 85 per cent LTV has been cut to 3.07 per cent from 3.15 per cent.
Brokers wanting to secure current rates have until 10.30pm tomorrow to produce mortgage illustrations and submit applications online. If brokers are unable to submit applications due to technical issues that cannot be resolved over the phone, they must submit a paper application and email their business development manager by midday.
Platform caps maximum LTI
Platform has reduced the LTV its maximum income multiplier can be considered for from 75 per cent LTV to 70 per cent LTV.
Borrowers requiring loans up to the threshold can borrow up to 4.85x their income while anyone with requirements above 70 per cent LTV and those using Help to Buy will have borrowing capped at 4.49x their income.
The change applies to applications submitted from 1 March.
Platform has re-introduced its Help to Buy mortgages at 60 per cent LTV and 75 per cent LTV with two and five-year fixes.
All products have £500 cashback and free valuations. At 60 per cent LTV, rates for both two and five-year fixes with a £999 fee are 1.79 per cent. At 75 per cent LTV, rates are 1.95 per cent.
For fee-free Help to Buy products, rates are 2.02 per cent at 60 per cent LTV and 2.2 per cent at 75 per cent LTV.
The lender has also relaunched fee-free mortgages at 60 and 75 per cent LTV, with two- and five-year fixes.
Elsewhere, Platform has reduced rates on residential, professional and mainstream mortgages by up to 0.12 per cent. Product switches for residential and buy-to-let mortgages have seen rate hikes of up to 0.19 per cent.
Halifax and BM Solutions
Halifax has reduced rates on remortgages.
Meanwhile Lloyds Banking Group’s buy-to-let brand BM Solutions has increased the rate of a five-year fixed at 75 per cent LTV with a £999 fee. The product transfer now has a rate of 2.21 per cent.
Halifax tightens income multiples
In a note to its intermediaries, Halifax said the 4.49 times income multiple currently used for workers earning less than £25,000 will be extended to include those with annual earnings of less than £30,000.
The bank said it was making the change to ensure it continued to lend responsibly to borrowers on lower salaries.
Applications that include any element of self-employed income will also be subject to the same change.
Halifax said this temporary change would give it “short-term flexibility on products and service levels”. The criteria change will kept under regular review.
To capture the information, the affordability calculator on the Halifax Intermediaries’ website will include the question, “does any applicant have any self-employed income?”
All other loan to income ratios will remain the same.
A spokesperson for Halifax said the bank regularly reviews criteria and the change remains in line with the market.
The changes take effect from Thursday 7 January.
Existing applications will not be subject to the changes.