Income Multiples are under attack from the government what does this mean for your chances of getting a mortgage?
You have probably caught the headlines on Sky, BBC and in the daily newspapers about curbing lenders potential to lend from 6 times income (in some instances) to 4.5 times. In this article I will provide practical solutions to help you achieve the maximum borrowing.
Why has the change come about?
The housing recovery really has had momentum this year with house prices seemingly rising daily as such inflation has become a real concern to the Government. They know they are under pressure to release the five year hand brake on interest rates and are genuinely concerned that they could plunge the exposed borrowers, who have perhaps borrowed beyond their means, into difficulties.
As a cautionary measure they have announced a restriction on the amount lenders is able to lend as a multiple of income to limit the potential ofindebtedness for new borrowers. This is an unprecedented move and against ‘free market principles’ and sign of a move towards a greater ‘nanny-state’.
What does the announcement mean? Well when imposed it will limit the amount an applicant(s) can borrow to 4.5 times their income in the majority of cases, rather than the 6 times income products we have had at our disposal to date which could mean your dream house becomes just a dream.
What are the new Proposals / Guidelines
Prudential Regulation Authority and the FCA that no more than 15 per cent of a lender’s new mortgage lending be at more than 4.5 times income.
The recommendation applies to all residential mortgage lenders that lend over £100m a year.
The PRA board is today setting out proposals on how the recommendation will be implemented and the consultation will be open for comments until 31 August. The final rules will take effect on 1 October.
While the rules will come into effect on 1 October, any mortgage that completes after this date will be subject to the proposed rules, regardless of whether the application or a decision in principle was completed before then.
Buy-to-let, remortgages where there is no increase in indebtedness, equity release and lifetime mortgages and second charge loans are not included in the cap.
In the FPC’s latest financial stability report, published today, the committee said most lenders currently lend within the recommended limits but added that it was necessary to take action to ensure people do not take on more debt than they can afford.
What you should do?
In simple words if you want a mortgage get a move on as mortgages are going to be harder to obtain. These rules will hit the London market the hardest and will suppress prices which means you will be competing with more and more buyers. We are also waiting on further guidance for existing clients with current mortgages which are over 4.5 times the household income to devise a suitable remortgage strategy.
How can we help you?
As one of London’s leading specialist brokers we have access to over a hundred lenders and will be able to guide you through the regulatory and affordability maze. We deal with issues such as: income multiples affordability calculations; lenders changing criteria’ as well as mandatory compliance criteria which is changing on a daily basis – so there is no better time to seek specialist mortgage advice.
The inside track to affordability
If you want to achieve the maximum amount of mortgage available to you I highly commend you read my articles How Affordability Works With Lenders and also What Documentation Do I Need To Get A Mortgage. This will give you an insight into how lender’s think and between us will allow us to devise a strategy to meet your own individual requirements.
Furthermore we do NOT charge an upfront fee which means you have nothing to lose by seeking professional advice from us.
For more information about the different lenders affordability models as well as the new changes on income multiples please contact us on (020) 7993 2044 or alternatively complete the enquiry form on this page.
Payam Azadi is a partner at Niche Advice Ltd who are Independent Financial and Mortgage Advisers in London.