With the Government firmly backing them, an increasing number of lenders are confirming they will offer larger loans to mortgage borrowers in relation to their earnings.
The most recent instance of this emerged this week, when NatWest revealed it has raised its maximum Loan to Income (LTI) for joint applicants earning above £150,000, meaning they can now borrow up to 6.5x income. However, one broker, Gaurav Shukla, CEO at Marlow-based Home Me Mortgages, has cautioned that simply because you can borrow more doesn’t mean you should.
Gaurav said: “A growing number of people read about their ability to borrow more and then come to a broker like me wanting to do exactly that. They see they can now technically afford a bigger property or move to a nicer area and say, ‘get me that mortgage‘.
“The problem is that there’s no such thing as a free lunch. When you can borrow more, that inevitably comes with increased risks and people need to understand that. People maxing out their mortgages are often leaving themselves little, if any, financial wriggle room.
“This means that, if unexpected costs occur or the cost of living as a whole increases, their finances can come under pressure quite quickly. And that’s where things start to go wrong.”
Gaurav suggests that it’s anticipated rises in the cost of living that people need to be especially mindful of at present when considering taking on larger mortgages.
He continued: “Inflation dropped this week and there’s a risk that they may think bills will continue to fall. The reality, of course, is that the full impact of the Middle East conflict has yet to hit people’s wallets and will likely do so over the summer or in the early autumn. In other words, there’s a risk a new cost of living crisis will hit home at precisely the time someone has completed on a dream home with a maxed-out mortgage.”
Gaurav said that anyone considering borrowing the most that they could relative to their incomes needed to be very clear as to how rising inflation could impact their incomes and ask themselves whether they are prepared to sacrifice their lifestyle if costs start to bite.
He added: “If borrowers are prepared to have one less holiday a year or eat out less if bills start increasing across the board, that’s a positive.
“But we know that many people don’t like to make sacrifices and that’s when they turn to credit cards and personal loans. And that’s when things can quickly start to get out of control.
“The moral of the tale? Anyone considering borrowing the most they can needs to go in eyes wide open.”