Banking giant Barclays has this week loosened loan to income (LTI) criteria for higher level mortgage funding, as news comes of a further drop off in mortgage approvals.
Previously, Barclays would limit loans to a maximum 4.5 times income for anyone borrowing over £300,000. That multiple has now been increased to 5 times.
“The fact that Barclays has decided to be a little more flexible with lending limits would suggest that we have now seen the back of the financial turbulence brought about this time last year, with the Mortgage Market Review” said Simon Butler, a senior consultant at specialist broker Contractor Mortgages Made Easy.
“It also comes as no surprise that figures published this week by the Bank of England show an 11% drop year-on-year to February in mortgage approvals. Given the upheaval amidst last April’s roll out of MMR, this is not surprising, and is in fact slightly better than many predicted.”
In a move predicted by many market commentators, Barclays have looked for ways to increase lending limits whilst maintaining affordability – the buzz word of MMR. Whilst lending below £300,000 will remain capped at 4.49 times income, the loosening of LTI criteria is seen as a big leap, particularly given current inflation levels.
“There are also rumours in the market place now that several smaller, or specialist lenders are looking at 100% loan to value (LTV) mortgages again, which would be a sound idea if worked correctly” added Butler.
“Take a look at the number of 95% LTV products in the market now compared to 12 months ago, and it is clear that there is a thirst for higher risk lending. After all, if MMR has shifted focus firmly to affordability does it not prove that these are in fact very similar in risk to many lower LTV loans?”
There are a small handful of 100% products in the market at present, however none of these are straightforward 100% mortgages, many with an element of guarantee by way of gua
rantor or step up facilities.
Given the requirements for capital reserves at higher LTV lending, naturally you would expect the additional costs of higher risk lending to be passed on to the consumer, som
ething that they may well be happy to pay, suggests Butler.
“Given the continued rise in rental costs since the financial crisis, it’s become incredibly difficult for the average person to maintain the cost of living alongside saving up for
a deposit, if not impossible, so paying a little extra on the cost of a mortgage in order to actually own your own home is a small price to pay for many.”
“The return of 100% LTV deals would have to be scrutinised in greater detail, as you would expect, but if the lasting legacy of MMR is one thing, it is that banks will do whatever they need to now in order to fully verify a borrower’s ability to repay. I think it’s a real possibility that we could see the return of the 100% mortgage by the end of the year.”
Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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