View more on these topics

Brokers defend higher income multiples for mortgage borrowing

Hunting-Houses-House-Home-Property-700x450.jpgBrokers have spoken out in defence of mortgage products based on higher than average income multiples following criticism for the deals in the national press.

This week, Darlington Building Society launched a six-times salary mortgage for professionals in certain professions, including accounting, law and medicine. This is the largest loan-to-income ratio mortgage product currently on the market.

A number of national newspaper reports have said the deals could put consumers at risk of defaulting, with one reporting that the products could create a ‘mortgage time bomb’.

However, brokers deny that this is the case and say that the deals will only be available to those who can prove they can afford them.

Coreco director Andrew Montlake says: “There is a wealth of difference between the extended income multiple models we see now and the craziness of the past. I understand that on the face of it, lending six times income may give cause for concern, but this is now all governed by overall affordability.”

He says that stress testing that a client can afford the loan, not just now but in the future, based on an increase in rates of circa 3 per cent gives a lot more comfort.

“Also, this is not something that is readily available to everyone like it was before. This is for professionals who have a proven expectation that they will be on an increasing salary projection over the next few years. It is a niche product aimed at the right people, not a mass market product carelessly being marketed as the norm.

“Whilst we cannot predict the future, we can feel somewhat more confident that these types of products are carefully underwritten and do play an important part in helping to move the market and get people onto the property ladder,” says Montlake.

Meanwhile, Largemortgageloans.com managing director Richard Merrett says that there are instances where applicants have good incomes and low outgoings and can demonstrate that higher mortgage repayments will be affordable and sustainable.

“The basic cost of living is the same for everyone. A pint of milk, for example, costs the same whether you earn £20,000 or £100,000. So, for higher earners, lenders can make a judgement that they will have a larger proportion of disposal income to spend on mortgage repayments once they have paid for essential items,” says Merrett.

“Different lenders will have different ways of calculating affordability, but all will have systems and controls in place to ensure that lending is affordable and sustainable. This was a key element of the Mortgage Market Review and it is a significant differentiator between today’s market and the lending environment prior to the financial crisis.

“Used appropriately, with the right systems and controls, lenders are able to address the affordability issue, which is a major hurdle for many homebuyers and in doing so they can deliver good customer outcomes.”

He adds that in the right circumstances, for the right borrowers, higher income multiples can provide customers with more choice and opportunity to take a mortgage that matches their needs, and that this should be encouraged.

John Charcol product technical manager Nick Morrey says that regulations stipulate that up to 15 per cent of lender business can be carried out on different income multiples.

“There is nothing to stop a lender offering up to 10 times income if they choose to, so long as stress tests and affordability checks are carried out,” says Morrey.

Darlington Building Society director of products and marketing Caroline Darnbrook says the lender individually assesses each mortgage it provides, “meaning that we can undertake appropriate due diligence and get the clearest possible picture of a borrower.”

“We are then able to ensure that we lend responsibly and in line with the specific circumstances of an individual.  Every mortgage that we write is considered with five pillars of lending in mind and the combined risk of these is taken to provide an overall picture. The five pillars are loan-to-value, loan-to-income, credit history, affordability and security.”

Darnbrook adds that the new professionals mortgage has been designed to support the needs of newly qualified professionals who are looking to get onto the housing ladder.

“In this case, our assessment takes into consideration the understanding that the salaries of these individuals are likely to increase significantly in the future and therefore we are able to consider current affordability and also affordability in the future.

“This means we can move the borrower onto a slightly higher loan-to-income ratio, while maintaining a strong credit assessment,” she says.

Recommended

Business woman with question mark on a blackboard
1

FCA to question 3,000 firms on DB transfer risks

The FCA has confirmed that the fourth phase of its multi-firm supervision exercise on pension transfers will involve a market-wide data request to all firms with defined benefit transfer permissions. In a Freedom of Information request, the watchdog says it expects 3,026 firms will be completing its questionnaire. The probe is the fourth phase of the […]

2

KPMG hit with formal complaint over alleged pension fund misconduct

The Financial Reporting Council’s executive counsel has delivered a disciplinary formal complaint against KPMG and one of its partners, David Costley-Wood after it believes its professional judgement was “compromised”. The alleged misconduct saw 1,300 employees of mattress maker Silentnight without their promised pensions. The formal complaint also alleges that KPMG and Costley-Wood either knowingly or […]

16

Lib Dems up campaign for state pension equality

The Liberal Democrats have stepped up their campaign for state pension equality, asking new pensions secretary Amber Rudd to address the reasons why women face lower pensions than men. The party has again called for progress on helping women born in the 1950s hit with state pension age rises, a cause popularised by the Women […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com