As anyone currently looking for a mortgage knows, the chaotic scenes at the top of government have had big repercussions when it comes to home loans.
The speculation over likely increases to the Bank Base Rate, following the disaster that was the mini-Budget, has meant significant increases in the interest rates on offer to borrowers, making it all the more costly to buy or refinance.
But it’s important not to overlook the changes to the way that lenders determine how much they are willing to offer you.
How much can I borrow?
There are different factors which go into a lender determining how much they are comfortable lending you, but it’s common for lenders to have a ceiling in place which is worked out as a multiple of your annual income.
For example, if you and your partner have a combined income of £100,000, and the lender will go up to five times income, then the maximum loan will work out at around £500,000.
However, one of the impacts of the recent turmoil in the mortgage market has been that many lenders are reviewing those income multiples for particular types of borrowers.
A good example here is Halifax, which has reduced its income multiple for higher earners from 5.5 times income to 4.5 times.
That might not seem like a huge change on the face of it, but when you crunch the numbers it can leave prospective borrowers with a significant hole to fill.
For example, if a client wanted to borrow £500,000 and now finds they can only get £460,000, where is that extra £40,000 going to come from?
What’s particularly important about Halifax making this move is that it’s one of the biggest lenders in the country, and tends to lead the way somewhat when it comes to criteria changes.
If it is taking a more cautious approach to income multiples, other lenders are sure to follow.
Where are you spending your money?
There is more to these calculations than just multiplying your income, of course. Lenders will also want to get a closer idea of your finances, such as where you are spending our money each month.
And those commitments can have an increasingly significant bearing on the sums you’re able to borrow. We have seen some lenders recently start to limit the amount they are willing to offer to borrowers with existing debts or children, for example.
Again, this is happening with big, household name lenders, so it’s likely to be something that’s repeated by smaller names too.
Making use of experts
The mortgage market can be fast-moving at the best of times, but the pace of change that we have seen of late has been incredible.
Lenders have been pulling and repricing their mortgage deals, often with very little notice, as well as making important changes to their lending criteria.
This can make it incredibly difficult for ordinary borrowers to try to navigate alone.
That’s where a quality mortgage broker can be worth their weight in gold. Brokers are on the frontline of dealing with these product and criteria changes, and are therefore well placed to guide borrowers when it comes to determining the products and lenders for whom they will qualify.
What’s more, some of the best deals today come from intermediary-only lenders, firms who aren’t on the high street and offer their products exclusively through mortgage brokers. You can’t get their deals by applying directly to the lender.
A top broker will be able to advise you on how much you’ll really be able to borrow from a specific lender, taking all of the information into account, and help you secure the best possible deal even if there is further turmoil on the road ahead.
Richard Campo is founder of Rose Capital Partners
