Mortgage lenders offer home buyers loans up to six times salary 

Posted: 23 July 2018 1:03 pm

Lenders are getting creative to attract new business with some letting home buyers borrow big multiples of their salary to buy properties.

As the battle between UK lenders heats up, the old rule of thumb that a borrower could only access mortgages of between four and four and a half times their annual pay – as stipulated by the Bank of England – is being tossed out of the window.

With interest rates staying at low levels, and house prices rising at their slowest annual rate for five years, banks have been finding it hard to compete with each other simply on price. Instead, they have decided to loosen their lending belts to attract new business. A significant number are attempting to lure people to borrow by enticing them with loans that represent many times the applicant’s salary.

For example, Clydesdale Bank has increased the maximum it will offer to 5.5 times the borrower’s salary. This offer is currently restricted to borrowers who work in what the bank describes as “professional industries”, which include accounting and surveying, but these borrowers are only being asked to come up with a 5% deposit.

One of the newer retail banks, Metro Bank, is also offering similar loans to professionals. And Santander has boosted the maximum it’s willing to loan to 5.5 times salary if you earn £100,000 a year or more.

Kensington Mortgages is going even further, letting customers apply for mortgages that are six times the size of their salaries. To qualify, applicants have to be earning at least £100,000 annually, either individually or as a couple. Bonus income and commission can be included.

Despite saying earlier in the year that it would take steps to rein in overgenerous borrowing, the Bank of England believes the rules it has in place are sufficient to protect the economy and maintain high standards.

Lenders are taking advantage of a technical change that came into force early last year that means they are now judged annually rather than quarterly, making it less risky for them to offer a greater number of this style of loan.

Mortgage brokers, like Shaun Church at Private Finance, believe it’s happening because of a combination of a sluggish property market and competitive rates. To attract new business, lenders have to try new ways of drumming up fresh business. Increasing income multiples and relaxing lending criteria are helping lenders broaden their net to catch potential customers.

Other mortgage brokers, like Aaron Strutt of Trinity Financial, believe the loosening of lending belts has been necessary to help buyers to be able to buy the more expensive properties in London and the South East. Buyers, Strutt points out, need more generous income multiples in order to be able to afford the properties they want.

Taking out a mortgage is a big financial commitment, so it’s important that you explore the available options. That’s why finder has designed a guide to help you better understand how mortgages work and the best way of comparing the many different deals that are out there.

Picture: Shutterstock

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