A lender is offering mortgages which allow customers to borrow up to seven times their income on 10- and 15-year fixed rate products.
April Mortgages has launched its ‘enhanced loan-to-income (LTI) criteria’ to help borrowers who are facing affordability challenges.
Most lenders typically offer mortgages for sums which are 4.5 times borrowers’ incomes. There are some lenders which allow borrowing at a higher income multiple, with Nationwide offering some customers six times their income. However, they are limited on how many mortgages of this type they can offer.
The increased borrowing from April is available to applicants with a household income of £50,000 or more, offering up to 85% loan-to-value (LTV) – in other words, borrowing on 85% of the property’s value.
It comes as the latest data from the UK House Price Index, shows buyers are currently paying £268,000 for a typical home. April said this underlined the growing pressure on borrower affordability.
It explained at seven times income and 80% LTV over a 36-year term, a household earning £60,000 annually could access a mortgage of nearly £420,000 with its offering. This, it explained, was significantly more than the standard 4.5 times cap typically applied by most high street lenders.
What are the pros and cons of long-term fixed rate mortgages?
Borrowers taking out these deals will need to lock into the rate on offer for 10 or 15 years, which provides less flexibility than most mortgages.
April said this longer-term fixed rate model provided more stability and predictability for repayments.
However, on the downside, it also means borrowers would not benefit from any interest rate cuts during this time. If they were to exit the product early, they would incur early repayment charges.
These mortgages are only available via brokers, who have welcomed the new additions to the mortgage market. Some have offered advice on what borrowers should consider before taking out one of these deals.
Justin Moy, managing director at EHF Mortgages, speaking via the Newspage Agency, said the rates on offer were ‘more than average high street alternatives, but there were plenty of other benefits including the improved affordability. “That stretch,” he said, “might just make the impossible purchase happen.”
Ranald Mitchell, director at Charwin Mortgages, also speaking to Newspage, said: “April Mortgages’ launch is exactly the kind of innovation the UK market needs.”
He added: “The real strength of this product lies in its balance between opportunity and safety: borrowers gain enhanced borrowing power while retaining the flexibility to move home and overpay without penalties, a critical feature often missing from longer-term deals.”
But he warned: “Borrowers must go into long-term fixes with their eyes wide open. While fixing for up to 15 years offers invaluable payment security, it could mean missing out if interest rates fall in the future.
“That said, in today’s unpredictable market, many will value certainty over speculation. April Mortgages should be applauded for bringing fresh thinking and consumer-centric product design into the sector.”
