The new lender April Mortgages, which already provides a variety of fixed-rate mortgage options ranging from five to 15 years on 95% mortgages, has made a significant adjustment to its loan-to-income limits. This move is aimed at enhancing affordability for borrowers and expanding access to homeownership.
April Mortgages, which models its approach on the Dutch mortgage system, is now offering loans of up to six times the borrower’s income. This new cap applies to first-time buyers, home movers, and those seeking to remortgage on a like-for-like basis.
The lender’s decision to increase its loan-to-income ratio marks a notable shift in the market, potentially providing greater opportunities for individuals and families looking to enter or move within the housing market. This adjustment could have a substantial impact on buyers’ ability to secure larger mortgages and afford homes in today’s competitive market.
Skipton Building Society has announced it will offer loans up to 5.5 times income for first-time buyers, adding to the range of lending options available.Â
Newspage, a financial services agency, gathered opinions from mortgage and property experts on this development, revealing varied responses.
Justin Moy, Managing Director at EHF Mortgages, noted the potential risks of higher borrowing limits, especially with rising interest rates. However, he highlighted that combining higher income multiples with long-term fixed rates, as seen with April Mortgages, offers a low-risk option for borrowers. While longer-term deals, such as 10- or 15-year fixed rates, may seem unconventional compared to the typical 2- or 5-year options, they provide valuable stability and reassurance for many homeowners.
Ben Perks, Managing Director of Orchard Financial Advisers, has raised concerns about the implications of the new ultra-long fixed-rate mortgage deals. He questions whether these extended terms might effectively trap borrowers into lengthy commitments with limited flexibility. Perks argues that while these long-term rates offer stability, they could restrict borrowers’ options to switch to better mortgage deals in the future. He emphasises that the potential drawbacks of being locked into such deals might outweigh the benefits, especially if it limits borrowers’ ability to access more favourable terms as market conditions change.
In contrast, Ranald Mitchell, Director at Charwin Mortgages, offers a more positive perspective on the changes introduced by April Mortgages. Mitchell views the extended loan-to-income ratios and long-term fixed rates as a bold and progressive move within the lending market. He believes this approach will greatly benefit buyers, particularly those with smaller deposits, by offering them greater buying power and financial stability. According to Mitchell, the longer-term mortgage rates remove the need for stressful affordability tests, allowing a genuine assessment of financial stability.
Mitchell highlights that the new lending options provide a significant advantage to those who struggle to save for large deposits. By increasing the loan-to-value options and extending the fixed-rate terms, April Mortgages is enabling more people to enter the property market and manage their finances more effectively. He sees this initiative as a major step forward, which could potentially transform the mortgage landscape by offering more accessible and stable financing solutions.
Overall, while Perks is cautious about the potential limitations of these long-term deals, Mitchell is enthusiastic about the opportunities they present. Both perspectives reflect the broader debate within the industry about the balance between financial stability and flexibility in mortgage products. As the market adapts to these new offerings, it will be important for borrowers to carefully consider how such deals align with their long-term financial goals and needs.
Property developer Kundan Bhaduri from The Kushman Group has expressed concerns about the risks associated with extended loan-to-income ratios and high fixed rates. He believes that allowing loans up to six times earnings, especially at a time when interest rates are high, could place many buyers and movers in a precarious financial position. Bhaduri warns that some individuals may overextend their borrowing limits, which could lead to problems if property prices decline in the coming years.
On the other hand, Olivia Harland, Senior Mortgage Consultant at Cleerly Limited, acknowledges that while long-term fixed rates are still relatively uncommon, they do appeal to a certain segment of buyers. She notes that with interest rates having recently decreased, more people are likely to consider locking in long-term fixed rates to secure affordability. This is particularly relevant for those who are facing rising rents and are looking to purchase their first home.
