Recent reports suggest that the housing market is currently stable and that we are unlikely to experience the 'crash' that some people had predicted. This added sense of stability fuels both consumer and lender confidence.
Over the last month both buy-to-let and residential mortgage providers have begun to revise their rental/income criteria, opening up the availability of their products to a wider audience, whilst implying confidence in the market.
Lisa Taylor from moneyfacts.co.uk comments:
"Several buy-to-let providers have chosen to lower the minimum interest cover they require over the last couple of months, commonly reducing from 130% to 125% of interest cover, moving the industry average towards the 125% mark.
"This lower figure is still viewed as being at a prudent level, with arrears low, continued growth in the market and inflationary pressures causing yields to fall. At the annual CML seminar (31.5.06) on buy-to-let and the private rented sector, Paragon reported that in fact only around 5% of landlords have rent cover of less than 100%, while around 40% have over 130% rental cover."
The most recent changes include:
"Similarly, Chesham BS and Progressive BS have announced this month that income multiples on residential mortgages have increased, in most cases by a factor of 0.25.
"In particular the move by Progressive BS to offer four times joint income, is a massive leap from the three times previously offered, and positions its criteria above many of the enhanced income multiples offered by other lenders, often requiring large salaries or low LTVs."
The new income multiple criteria are:
"Although these moves will be welcomed by many consumers seeking to get a first step on the property ladder or those looking to take the next move up the property market, these larger loans will have a detrimental effect on their day-to-day income.
"If we take for example a couple earning a combined salary of £50K, (£25K individually), using Progressive's new income multiples, they could be looking at a mortgage of £200K. Assuming an interest rate of 5% and a mortgage term of 25 years, their monthly payments would be in the region of £1,170.
"With their take home salary around £3,110, their mortgage commitment alone would eat up almost 40% of their disposal income, leaving the remaining 60% to cover all other utility bills, travel expenses, food and day-to-day living costs. But what happens if rates rise? Or if one income is lost, for example if they decide to start a family?
"Worryingly, recent figures show that, on average, a massive 43% of consumers' disposal income is spent on mortgage payments alone, and with suggestions that household bills and taxation will represent a larger slice of disposable income than mortgages, what are people to live on?
"With increasing flexibility in the mortgage market, and lenders stretching their criteria, consumers should not always go for the absolute maximum they are offered. They should strongly consider the impact it will have on their disposal income and ultimately on their lifestyle."
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