Increase to maximum lending for high street favourites

With rates dropping and house prices still rising some lenders have decided to raise the ceiling on what they are prepared to let people borrow. This is primarily aimed at First Time Buyers to help them get onto the property ladder with maximum lending.

Nationwide

They have increased their Helping Hand proposition maximum lending from 5.5 x to 6 x income. For this you will need a minimum income of £30,000 (sole applicant) or £50,000 (joint applicant) and the product will need to be a 5 or 10 year fixed rate.

Halifax

They have increased their maximum income multiple to 5.5 x for applicants. On a joint application only one applicant needs to be a First Time Buyer and the total household income needs to be £50,000 or more. This cannot be for applications where the loan to value is over 90%.

With both lenders, they cannot allow the larger income multiples for applications when:

• There is self-employed income for either applicant
• Used in conjunction with any scheme or non-standard ownership type (for example Deposit Unlock, First Homes, Shared Ownership, Genuine Bargain Price, Right to Buy and Help to Buy)
• Interest Only applications

Are there downsides?

1. Higher Monthly Payments: Borrowing a larger amount will result in significantly higher monthly mortgage payments, which can strain your budget. This can make it harder to save for emergencies, retirement, or other financial goals.
2. Increased Interest Costs: A larger loan means you’ll pay more interest over the life of the mortgage. Even a small increase in interest rates could add significantly to your total repayment.
3. Risk of Negative Equity: If property prices fall, you could end up in negative equity, where your home is worth less than the outstanding mortgage. This can make it difficult to sell or refinance your home.
4. Greater Financial Vulnerability: With a higher mortgage relative to your income, any financial shocks (such as job loss, illness, or an interest rate increase) could make it harder to keep up with payments, increasing the risk of repossession.
5. Stricter Affordability Checks: Lenders are likely to impose stricter affordability criteria for higher loan-to-income ratios. They might require a larger deposit, scrutinize your spending more closely, or demand better credit scores.
6. Limited Flexibility: High monthly payments reduce financial flexibility, making it harder to handle other financial obligations like education costs, family expenses, or additional loans.
7. Interest Rate Vulnerability: If you have a variable or tracker mortgage, any rise in interest rates could make repayments even more challenging, particularly if you’ve stretched your budget to borrow at a high multiple of your income.
8. Tighter Lending Conditions: The Financial Conduct Authority (FCA) has rules that limit the proportion of lending at higher income multiples. Lenders may only approve such mortgages in exceptional circumstances, meaning it might be harder to switch lenders or negotiate better deals in the future.

Overall, borrowing 5 to 6 times your income can increase the financial risks and limit your long-term financial stability. It’s important to carefully assess whether this level of borrowing is sustainable for your personal circumstances.

Your home may be repossessed if you do not keep up with your repayments on your mortgage.