The days of mortgages being determined on simple income multipliers are long gone and the increasingly crowded market is evolving to meet the changing needs of consumers. To help us understand more about the affordability and availability of mortgages, we talked to Michael Tickner, a mortgage specialist at KT Partnership.
The days of mortgages being determined on simple income multipliers are long gone and the increasingly crowded market is evolving to meet the changing needs of consumers. To help us understand more about the affordability and availability of mortgages, we talked to Michael Tickner, a mortgage specialist at KT Partnership.
What has changed in the mortgage market recently Michael?
Back in 2014, the Mortgage Market Review fundamentally changed the way mortgages are sold, with the concept of affordability becoming the key factor. Lenders are now focussed more on the living costs of applicants to understand the level of payments that can be financed. What this means in reality is that income multiples can be lower for those with earnings around the average national wage (approximately £26,000 according to the latest ONS statistics) but can increase to as much as 5 times single or joint income for higher earners, for whom normal living costs constitute a smaller percentage of their income.
Does this mean mortgage applications have become more complex?
It’s true that lenders now require far more information about the spending habits of applicants. But increasingly, lenders are using lifestyle questions to help inform decisions, with data from the Office of National Statistics used to either sense-check or calculate living costs.
It is normally possible to get a pretty clear idea of likely lending levels and costs from an initial discussion with a client.
What affects the level of lending?
Lending is primarily a factor of income, living costs and debt. Unsecured debt is not a barrier to getting a mortgage, but the annual cost of servicing that debt will be deducted from the level of lending otherwise offered.
With employment terms evolving, how does this effect mortgages?
We’ve seen a real rise in people adopting more flexible working patterns. Those in employment may now work zero-hours contracts or fixed term contracts. At the same time, there has been an increase in the number of people choosing to work for themselves, either as a sole trader or through the formation of a company. In mortgage terms, what this means is that earnings can be far more varied and lenders need to understand what realistic earnings are likely to be.
One upside of the more flexible working patterns is that it is often a conscious decision by one parent to help mitigate or avoid childcare costs. By reducing those costs, it is likely a higher level of borrowing can be sustained if required.
How have the changes to retirement age affected mortgages?
Historically, people were expected to retire at 65. What we’re now seeing is an increasing number of people choosing to work through until 70 or 75. In response to this, we have seen a number of lenders introduce products with maximum ages of up to 75 now available for certain occupations. Related to this, products are now available with 35-40 year terms, allowing monthly costs to be reduced.
What is the impact of getting a higher deposit?
Mortgages with lower ‘Loan-to-value’ (LTV) rates are always going to be cheaper, but the price differential has really dropped in recent years. This is driven in part by increased lending capacity, following an apparent collapse in the buy-to-let market after the introduction of increased stamp duty.
What are your top 5 tips for anyone considering moving and needing a mortgage?
- Consult an independent mortgage adviser. Around 85% of all mortgage applications are managed by an independent adviser now. They offer you easy access to the whole range of products.
- Get as much deposit together as you can. Although the difference between rates has certainly reduced in recent years, it is still possible to save money by having a lower Loan-To-Value rate. Consider borrowing from the ‘Bank of Mum & Dad’ if it gets you across one of the threshold rates, which now move every 5%
- Consider buying a property with a friend or sibling. Mortgage applications can be made in joint names and the increased earnings will help secure higher lending levels.
- Don’t assume mortgages have to be for a 25-year period. With terms up to 40 years now available, you can reduce your initial costs but retain the flexibility to make over-payments in the future.
- Get a clear view of your monthly outgoings before you start the process. It will make it much easier for your adviser to provide you with initial indications of likely borrowing levels and costs.
KT Partnership are able to assist clients and applicants of Michael Everett & Co, helping you ensure you have access to specialist mortgage advice and a clear understanding of your budget when buying your next home. Why not ask us for an introduction to Michael or one of the team of advisers at KT Partnership. They offer special rates for clients of Michael Everett & Co with clear and transparent pricing and no application fees.
Perhaps that dream home of yours is more affordable than you thought.