A mortgage lender is now offering home buyers and homeowners the opportunity to borrow up to seven times their annual salary – as opposed to the usual four and a half times.
April Mortgages, which launched its first products a year ago, is making the increased borrowing available to first-time buyers, home movers and those looking to remortgage.
It says its seven times income multiple mortgages are open to both single and joint applicants earning at least £50,000 a year.
Customers will need to fix their mortgage for 10 or 15 years to benefit from the higher multiples, but unlike most shorter fixed rate deals, there are no early repayment charges for moving home or when repaying in full.
However, there are early repayment charges for those switching to another lender during the fixed rate period.
It’s worth noting that in order to switch to a different lender, borrowers will need to be able to pass different affordability rules.
Overpayments are also allowed at any time without penalty, and April says mortgage rates automatically reduce as borrowers pay down their loan and move into lower loan-to-value bands.
Customers can borrow up to 85 per cent of the property’s value and choose terms of up to 40 years, with loan amounts starting from £50,000.
Someone getting a mortgage at seven times income to cover 80 per cent of a property’s value could see a massive uplift from what other lenders are able to offer.
In this scenario, a household earning £60,000 annually could access a mortgage of nearly £420,000 with April as long as they have a term of at least 36 years.
This is significantly more than the standard 4.5 times income cap typically applied by most high street lenders that would limit a £60,000 earning household to £270,000.
Rachael Hunnisett, director of mortgage distribution at April Mortgages says the move is designed to help people struggling with affordability as house prices continue to rise faster than wages.
She also says the extra borrowing power could be the difference between compromising and getting the home you really want.
‘The housing market has shifted dramatically,’ said Hunnisett. ‘With house prices rising far faster than wages, owning a home has become harder to achieve – even for those with steady incomes.
‘But having a place to call your own still brings security, stability, and the freedom to build a life – and that shouldn’t feel out of reach.
‘We’re committed to making mortgages simpler, more flexible, and better suited to the way people live today.
‘That’s why we’ve added a real borrowing bounce to our modern mortgage products – giving eligible borrowers the chance to access up to seven times their income.
‘When combined with our thorough affordability checks and the long-term certainty of a 10 or 15-year fixed rate, we’re helping people not just get on the property ladder, but stay on it with confidence.’
What are the rates?
As can be expected, mortgage rates are higher than what borrowers will likely be able to get elsewhere.
The lowest five-year fix for someone buying with a 40 per cent deposit is 3.94 per cent with Nationwide and the lowest for someone with a 15 per cent deposit is 4.3 per cent with Santander.
Obviously, April is all about taking a long-term approach. But even its 10 year fixes are far pricier than other deals on the market.
The lowest 10-year fix for someone buying with a 40 per cent deposit is 4.44 per cent with Santander, while those buying with a 15 per cent deposit can get 4.84 per cent with Nationwide.
Someone using Nationwide’s deal on a £200,000 mortgage over a 30 year repayment term could expect to pay £1,054 a month.
Someone fixing for 10 years with April could get 5.35 per cent if they have a 40 per cent deposit or more.
For those with a 15 per cent deposit it is offering 5.55 per cent. Someone using April’s 5.55 per cent deal on a £200,000 mortgage over a 30 year repayment term could expect to pay £1,141 a month.
April also charges fees on top of the rates. This includes a non refundable £195 application fee and a product fee of £995, which can be added to the mortgage if required.
Can people afford to stretch to 7x income?
This is the big question: How willing are people to cut back on their living costs in order to get on the ladder.
A couple earning £30,000 a year each will be taking home £2,093 every month after income tax and national insurance is deducted.
Combined together that’s £4,186 after tax – and that’s before any pension contributions, childcare costs, student loan repayments or other commitments are included.
April says that a household earning a combined £60,000 gross income could potentially borrow up to £420,000 with them.
A £420,000 mortgage fixed at 5.55 per cent on a 36 year term (required to hit April’s affordability) would cost £2,248 a month.
After paying the mortgage each month that would leave our couple with a combined £1,938 a month between them for everything else. That would include, food, travel, utilities, leisure and even property repairs. For most people that would make for a very tight budget.
It may be possible to lower the monthly payments by extending the mortgage term up to 40 years. April advertisies this fact.
Extending the same scenario to a 40-year term would reduce monthly payments to £2,180 leaving the couple with a combined £2,006 a month left over.
Again this will likely be too high a cost for most. However, perhaps for a select few it may seem like a price worth paying, particularly if they have been paying rent at a similar level.
In reality, many first-time buyers won’t need to stretch themselves to seven times their annual income, particularly those buying in more affordable parts of the country or who have a helping hand from parents with their deposit.
Currently, the average first-time buyer is borrowing at an average of 3.26 times their annual income, according to UK Finance data.
Contact one of our highly experienced mortgage advisors today on 0121 500 6316 to discuss your mortgage needs.
