Homebuyers will be able to borrow up to 5.Five times their annual salary with a brand new mortgage deal from Loughborough Building Society.
This is really a lot greater than the amount you can usually borrow – which is usually capped at 4 or 4.5 times your income. But would you risk taking on more debt than you really can afford?
Which? explores the brand new mortgage deal, and explains how income multiples affect your mortgage.
New mortgage from Loughborough
The new deal from Loughborough Building Society is really a variable rate mortgage, having a two-year discount period. Which means that for that first couple of years, you’ll pay a set fee less than the lender’s standard variable rate (SVR) – currently exercising to two.45%.
After that, you start make payment on full SVR, which is a relatively high 5.34%. So, the entire APRC within the lifetime of the offer could be 4.9%.
Keep in mind that the SVR could change anytime, so your repayments can vary.
When trying to get the mortgage, you’ll have to put pay a deposit with a minimum of 15% and pay a charge of lb999. Probably the most you’ll have the ability to borrow is lb750,000.
To qualify, you’ll also require a relatively high income – at least lb50,000 if you’re applying by yourself, or lb75,000 total if you’re applying with another person.
Can you borrow 5.5 times your income?
The new deal is unusual in allowing applicants to gain access to as much as 5.Five times their annual salary.
Loughborough Building Society said these were responding to demands in the market.
A spokesperson from Loughborough Building Society said: ‘As house prices have increased, we've encounter more and more instances where the income multiple restricts people who are well able to afford the monthly payments.’
At present, however, this degree of borrowing is just available on one deal, which Loughborough Building Society said it would ‘monitor closely.’
How do mortgage income multiples work?
Banks and building societies will traditionally offer mortgages which is between Three or four.Five times a person’s income – referred to as ‘income multiple’. For example, in case your total household earnings are lb75,000 a year, the most you’d have the ability to borrow is between lb225,000 and lb337,500.
With the Loughborough Building Society deal, you’d have the ability to borrow as much as lb412,500.
There are other providers who'll lend you as much as 5.Five times your income, including Clydesdale Bank. However, this offers are only available to certain professionals, who qualified previously 5 years and produce at least lb40,000 annually.
Darlington Building Society, meanwhile, provides a mortgage of 6 times your annual income if you belong to a specific profession.
Both cater to accountants, barristers, physicians, dentists, pharmacists, solicitors and vets. Darlington will even give loan to actuaries, engineers and optometrists, while Clydesdale Bank’s criteria includes architechts, chartered surveyors, dentists and pilots.
Should you borrow 5.Five times your earnings?
You should think long and hard about your future earnings and employment before taking out a home loan at up to 5.Five times your salary.
The larger the borrowed funds, the longer it will require to repay. You may also boost the risk of neglecting to make repayments, potentially costing you your home.
A variable-rate mortgage might be especially risky, because the lender could increases their rates at any time. So make sure you could comfortably afford to a jump in your repayments.
It’s also worth taking into consideration how these deals compare on interest – you might find better rates on deals offering you a smaller loan.
You can use the Which? mortgage calculator to discover how much a lender might be prepared to lend you.
Ways to boost your borrowing power
Your income isn’t the only factor lenders will consider when deciding just how much to lend you. Here are a few steps which could improve your likelihood of securing a home loan.
Earn a normal income in a stable job
Mortgage lenders will appear on your application more favourably if you are in long-term employment. As a general rule, you will need to happen to be employed for between 3 to 6 months in your current role. So, if you’re changing jobs, it may be worth waiting a while before applying. If you’re self-employed, read our help guide to self-employed mortgages.
Improve your credit history
A lender will also want to see a powerful credit rating. You can obtain a statutory credit history from each one of the three main credit agencies – Experian, Equifax and Callcredit – free of charge. You should look into the information held in your file is true, as occasionally it may contain errors which could affect what you can do to obtain a loan.
Get on the electoral register
This might not seem obvious, but lenders will invariably check your electoral enrollment. The roll is one of the main ways lenders will verify your identity and address, so it’s important to register every time you move.
Increase your deposit size
Normally, the minimum deposit is around 5% from the property purchase price. However, some goods are now offering a 100% mortgage if a family member is prepared to do something as a guarantor. Having said that, using a bigger mortgage deposit will boost your application’s chances, and may result in more attractive mortgage handles better interest rates.
Get a joint mortgage
A joint mortgage could be an option if you wish to buy a property with a minumum of one body else, and some lenders will allows up to four to buy together. The property ownership could be split up into shares, or you could each own the whole property as joint tenants. Obviously, it’s vital you trust the individual you’re buying with.
Use a home loan broker
You can save time on your application by employing a home loan broker, or adviser who'll let you know which lenders are likely to accept you based on your funds. They are able to also help speed up the application by coping with paperwork for you.
