A mortgage lender is letting homebuyers borrow up to seven times their income – well above the traditional maximum – which it says will allow some to buy a property they might have assumed was well out of their price range.
Habito’s new formula for calculating how much people can borrow is considerably higher than the industry’s typical maximum of between four and five times salary, and while it could allow some buyers to scale up their property-buying ambitions, it could also revive debate about responsible lending practices.
However, these more generous terms are only available to people who take out one of the company’s “fixed-for-life” mortgages launched this year, which let borrowers lock their monthly repayments at the same level for up to 40 years.
Banks and building societies look at various aspects of people’s finances when deciding how big a mortgage they will let someone take out.
Traditionally the typical maximum “income multiple” available in the UK is about 4.5 times salary, though in 2021 a number of big lenders including Halifax and HSBC have lifted their caps to 5.5 times for certain borrowers.
Habito’s new terms apply to its Habito One mortgage. To qualify to borrow seven times their income, applicants have to work in one of a number of professions, including firefighters, police officers, NHS clinicians, such as nurses and paramedics, as well as teachers in the public sector – and earn a minimum basic salary of £25,000 a year.
Higher-income earners on a minimum £75,000 basic salary are also eligible. Borrowers will need a deposit of at least 10%.
In a joint application only one person will be accepted for up to seven times salary, while the other will have their salary multiplied by five. Interest rates on the mortgages start at 2.99%
Daniel Hegarty, the founder and CEO of Habito, says, “Longer, fixed-rate mortgages mean that customers are completely protected against any threat of fluctuating interest rates, in a way that shorter fixes of two or five years mortgage deals don’t allow for.
“As a lender that considers every applicant’s case individually, we’re confident that with suitable criteria in place, in the right circumstances, eligible customers can safely and securely boost their borrowing to buy the home that truly suits their needs and their life plans.”
Nick Mendes, a mortgage technical manager at the broker John Charcol, said the home loans market was changing – this month the Bank of England announced plans to ease mortgage lending rules – and he expected more of these types of deals.
However, he suggested this could lead to higher prices. “If more people know they can stretch their income multiple and borrow more, that will have knock-on effects on the housing market – a bit like with the stamp duty holiday,” he said.
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UK lender allows homebuyers to borrow seven times salary