Getting the maximum mortgage but what about the lenders Mortgage affordability rules
There are a couple of building societies that will lend up to 6 times your income on a mortgage. They flit in and out of the market depending on their appetite and appeal to mortgage customers earning at least £50,000. Most Mortgage Lenders tend to operate between 4 to 5 times income, with some Specialist Lenders between 3 to 4 times income.
Avid readers of my blogs will know there are ways to enhance borrowing potential if you have extra variable income (e.g. bonuses, allowances, commission, overtime, shift supplements etc); multiple jobs; multiple applicants and state benefits.
However the latest Prudential Regulatory Authority (PRA) directive is a stark warning to Mortgage Lenders who has perhaps been “over creative” with their practices to distinguish themselves from the competition. How so? Well the PRA indicated affordability stress-testing should be “3% over Base Rate”. Some Mortgage Lenders took this to be Bank of England Base Rate (BBR) which currently sits at 0.25%. However perhaps somewhat unclearly the PRA meant the “Lender’s own” base rate, more commonly known in the industry as “standard variable rate” (SVR).
I cannot comment on whether the individual main banks below are working off BBR or SVR, it’s a calculation behind the scenes, but if they are not then the stress rates would be as per the following table rather than at 3.25%, and the higher the stress rate the greater the impact on the Mortgage Lenders affordability calculations.
[ezcol_1third].[/ezcol_1third] [ezcol_1third]Current variable[/ezcol_1third] [ezcol_1third_end]Plus 3% stress-test margin[/ezcol_1third_end]
[ezcol_1third]Halifax[/ezcol_1third] [ezcol_1third]3.74%[/ezcol_1third] [ezcol_1third_end]6.74[/ezcol_1third_end]
[ezcol_1third]Nationwide[/ezcol_1third] [ezcol_1third]3.75%[/ezcol_1third] [ezcol_1third_end]6.75[/ezcol_1third_end]
[ezcol_1third]Santander [/ezcol_1third] [ezcol_1third]4.49%[/ezcol_1third] [ezcol_1third_end]7.49[/ezcol_1third_end]
Source of Variable rates Twenty7tec 6/8/2017
It makes interesting reading and serves as a PRA warning that interest rates will not be at their current low levels forever and Mortgage Lenders need to be cautious.
In another move PRA has said it is watching the use of 5 year fixed rates. A method uses by Mortgage Lenders, particularly in the novice Buy-to-Let market, to circumnavigate their high stress-test requirement as they need only to assessed on the 5 year fixed rate payrate, which is typically much lower at the moment. The PRA sees the use of long term fixes as “storing up a problem” by putting customers in a false bubble. The thought is this ultimately will lead mortgage customers to lengthen their mortgage to make the mortgage affordable or even result on them being ‘trapped’ should the practice stop.
To conclude, it’s going to get harder to get a mortgage as rates are heading in on direction, up! So if you are thinking of getting a mortgage and want the maximum now is the time to act.
Niche Advice offers appropriate advice on mortgages including to those who are trying to borrow the maximum. To find out how we can help you hit the Contact Tab on this website or call T: 020 7993 2044. Remember every lender has a different set of rules and we will find the one that helps you the most.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines. To get in contact with him please click here.
