The new lender April Mortgages – which already offers a range of five to 15-year fixed rates on 95% mortgages, has dramatically increased its loan-to-income caps.
The lender, who says it emulates the Dutch mortgage model, will lend up to six times sole and joint income to first-time buyers, home movers and like-for-like remortgages.
Skipton Building Society also announced this week that it will provide up to 5.5 times loan to income to first-time buyers.
The financial services agency Newspage asked mortgage and property figures for their views – and received mixed results.
Justin Moy, managing director at EHF Mortgages, comments: “Extending the amount people can borrow can come with its own dangers, especially where the perils of higher rates can compound the pressure on borrowers. But when income stretch is coupled with the security of longer term rates, as it is with April Mortgages, it becomes the perfect low risk model for homeowners. Traditionally, most borrowers default to a 2-year or 5-year pricing model, so the move to a 10- or 15-year deal may seem like a huge leap of faith, but when priced well this creates the security and peace of mind many borrowers have been asking for.”
Ben Perks, managing director of Orchard Financial Advisers, is less enthusiastic: “Are they just kidnapping mortgage borrowers, locking them into long deals and throwing away the key? If they have the customer’s best intentions at heart, it’s difficult to see how. Ultra-long fixed rates lend themselves to cautious borrowers who seek certainty. But lending them more than they can get anywhere else and providing a long fixed rate just limits the customer’s options to switch to better deals down the line.”
Ranald Mitchell, director at Charwin Mortgages, sees it this way: “April Mortgages is shaking up the lending market with an exciting new extension to its loan-to-income ratio. This progressive move will empower countless buyers, who can benefit from five to 15-year fixed rates and up to 95% loan-to-value options, which is perfect for those with smaller deposits. Longer term mortgage rates eliminate stress tests meaning genuine affordability and financial stability is assessed. As many struggle to save large deposits, this initiative maximises buying power … a game-changer.”
Property developer Kundan Bhaduri of The Kushman Group is worried: “When lending is stretched to six times earnings, coupled with fixed rate borrowing at the top of the interest rate cycle, as we are currently at arguably, this will likely put thousands of home buyers and home movers in an over-leveraged position. It could end up in a raid scenario for a handful of people who will overzealously max out their borrowing but will fall flat with the slightest of downturn in property prices over the next few years.”
And Olivia Harland, senior mortgage consultant at Cleerly Limited, states: “There is definitely a group of people, albeit definitely still a minority, who prefer the security of a longer term fixed rate than the usual 2 to 5 year options. Since interest rates have started dropping over the past few weeks, more people will be conscious of locking in long-term affordability, especially with rent rises for those looking to get onto the property ladder.”
