New Lender Launches Mortgages Seven Times Income – Is This a Good Idea?
A mortgage lender, April Mortgages, is now offering home buyers and homeowners the opportunity to borrow up to seven times their annual salary, as opposed to the usual four and a half times. This increased borrowing is available to first-time buyers, home movers, and those looking to remortgage.
According to This is Money, April Mortgages, which launched its first products a year ago, is making the increased borrowing available to single and joint applicants earning at least £50,000 a year. This is Money reports that customers will need to fix their mortgage for 10 or 15 years to benefit from the higher multiples, but unlike most shorter fixed-rate deals, there are no early repayment charges for moving home or when repaying in full.
However, there are early repayment charges for those switching to another lender during the fixed-rate period. It’s worth noting that in order to switch to a different lender, borrowers will need to be able to pass different affordability rules. This is Money also notes that overpayments are allowed at any time without penalty, and April says mortgage rates automatically reduce as borrowers pay down their loan and move into lower loan-to-value bands.
Customers can borrow up to 85 per cent of the property’s value and choose terms of up to 40 years, with loan amounts starting from £50,000. Someone getting a mortgage at seven times income to cover 80 per cent of a property’s value could see a massive uplift from what other lenders are able to offer. In this scenario, a household earning £60,000 annually could access a mortgage of nearly £420,000 with April as long as they have a term of at least 36 years.
This is significantly more than the standard 4.5 times income cap typically applied by most high-street lenders that would limit a £60,000 earning household to £270,000. This is Money quotes Rachael Hunnisett, director of mortgage distribution at April Mortgages, as saying, “The housing market has shifted dramatically. With house prices rising far faster than wages, owning a home has become harder to achieve – even for those with steady incomes.”
Hunnisett also says the extra borrowing power could be the difference between compromising and getting the home you really want. She adds, “We’re committed to making mortgages simpler, more flexible, and better suited to the way people live today. That’s why we’ve added a real borrowing bounce to our modern mortgage products – giving eligible borrowers the chance to access up to seven times their income.”
When combined with thorough affordability checks and the long-term certainty of a 10 or 15-year fixed rate, April Mortgages is helping people not just get on the property ladder, but stay on it with confidence. As This is Money reports, mortgage rates for April Mortgages are higher than what borrowers will likely be able to get elsewhere.
The lowest five-year fix for someone buying with a 40 per cent deposit is 3.94 per cent with Nationwide, and the lowest for someone with a 15 per cent deposit is 4.3 per cent with Santander. April Mortgages’ 10-year fixes are far pricier than other deals on the market. The lowest 10-year fix for someone buying with a 40 per cent deposit is 4.44 per cent with Santander, while those buying with a 15 per cent deposit can get 4.84 per cent with Nationwide.
Someone using Nationwide’s deal on a £200,000 mortgage over a 30-year repayment term could expect to pay £1,054 a month. Someone fixing for 10 years with April Mortgages could get 5.35 per cent if they have a 40 per cent deposit or more. For those with a 15 per cent deposit, it is offering 5.55 per cent. Someone using April Mortgages’ 5.55 per cent deal on a £200,000 mortgage over a 30-year repayment term could expect to pay £1,141 a month.
April Mortgages also charges fees on top of the rates, including a non-refundable £195 application fee and a product fee of £995, which can be added to the mortgage if required. A couple earning £30,000 a year each will be taking home £2,093 every month after income tax and national insurance is deducted.
Combined together, that’s £4,186 after tax – and that’s before any pension contributions, childcare costs, student loan repayments, or other commitments are included. April Mortgages says that a household earning a combined £60,000 gross income could potentially borrow up to £420,000 with them. A £420,000 mortgage fixed at 5.55 per cent on a 36-year term would cost £2,248 a month.
After paying the mortgage each month, that would leave our couple with a combined £1,938 a month between them for everything else. That would include food, travel, utilities, leisure, and even property repairs. For most people, that would make for a very tight budget. It may be possible to lower the monthly payments by extending the mortgage term up to 40 years.
Extending the same scenario to a 40-year term would reduce monthly payments to £2,180, leaving the couple with a combined £2,006 a month left over. Again, this will likely be too high a cost for most. However, perhaps for a select few, it may seem like a price worth paying, particularly if they have been paying rent at a similar level.
Currently, the average first-time buyer is borrowing at an average of 3.26 times their annual income, according to UK Finance data. In conclusion, April Mortgages’ decision to offer mortgages seven times income may be a good idea for some, but it’s essential to consider the higher costs and potential risks involved.
For those looking for the best mortgage rates, This is Money has partnered with the UK’s leading fee-free broker L&C to provide a mortgage finder tool. This tool allows users to compare deals and find the best mortgage for their needs. As This is Money notes, mortgage rates have risen substantially over recent years, making it even more important to search out the best possible rate for you and get good mortgage advice.
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