Budget savings

Borrowers feel benefit as lenders relax mortgage affordability criteria

Mortgage brokers have suggested that more lenders are relaxing affordability criteria, as Barclays and the Cambridge Building Society are among those to have increased loan to income multiples in the past few weeks.

A move towards less severe affordability criteria is good news for borrowers, who have had a tough time qualifying for mortgages or larger loans in recent years.

Coventry for Intermediaries is making a real difference to the amount its customers earning between £25,000 and £70,000 can borrow. The lender now includes child benefit and has reduced the items it considers “essential living costs” that would have previously been deducted from an applicant’s income. They also no longer take into account the living costs of financially independent adults residing at the same address.

Increasing competition encourages lenders to review criteria

According to mortgage industry experts, providers are under increasing pressure to meet lending targets as the number of property transactions is falling. Many are already exploiting their rates competitively, and there is not much scope to drive new custom by reducing their margins further. However, by tweaking their affordability criteria and making mortgages more accessible they are guaranteed to open the door for a significant number of new customers.

An increase in the loan to income ratio will make a significant difference for many borrowers, especially those in London where maximum borrowing is key. Coupled with lenders such as Natwest and Santander taking a more balanced view on optional deductions on payslips too, borrowers looking at buying in London and similar areas should find purchasing a property much more attainable.

Mortgages at 4.5 times a person’s income are on the rise

Mortgages loaned at 4.5 times or more of a borrower’s income have been steadily rising for the past two years. Last year’s significant increase of 15%, taking the number loaned at 4.5 times income to 100,000, has raised some concerns about irresponsible lending and loan affordability should rates rise.

However, mortgage brokers are keen to emphasise that these changes are being made against a backdrop of historically low interest rates. Banks are taking a more cautious approach to lending and consider more than just loan to income to determine whether a mortgage is affordable or not.

A relaxation of the affordability criteria is good news for borrowers, from first-time buyers to home-movers, who may now find that a mortgage that was unobtainable is now an option.

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