Saffron Building Society head of business development Tony Hall says he is “surprised” by the latest Bank of England (BoE) figures that revealed high loan-to-income (LTI) lending tumbled to an eight-year low.
Speaking on Knowledge Bank’s Lenders Live, hosted by sales director Shane Chawatama, Hall explains: “I was surprised by the BoE’s figures because lenders, particularly in the specialist and complex arena, are stretching LTIs out.”
“In the last couple of weeks I’ve seen at least two lenders (West One and Clydesdale) push LTIs out to 6x income for the right applicants.”
Hall explains there are “natural concerns” over affordability in the market but says “this is where I see lenders like ourselves and others in the specialist and complex space come into our own because we’re prepared to take on each case on its merits”.
“If someone can demonstrate that borrowing up to six times their income is affordable then that’s a great solution. LTIs are being stretched out appropriately and not across the board.”
However, Chawatama highlights that as spending habits change, is it possible for people to apply for mortgages that allow for 6x income.
Hodge for Intermediaries national account manager James Enos was also surprised by the latest BoE figures.
“The specialist market has been growing and is growing rapidly, it has been identified now that lenders have had to approach affordability in a slightly different way, particularly because customers’ behaviour around income has changed quite a bit since the pandemic, alongside their attitudes in how they work and in the way they work as well as how lenders need to approach that to support affordability.”
Enos explains lenders have been stretching affordability for some time and he believes it’s needed.
“If you compare affordability from five years ago to client behaviours and what clients were able to buy on the market based on their LTI, it’s a very different place now. We have seen significant property price rises and clients need to see lenders adapting to that.”
While Enos describes the director of travel as “very positive”, he highlights that more lenders now, especially in the specialist space, are “flexing and are becoming more comfortable stretching the LTIs to several different clients”.
Knowledge Bank’s Chawatama asks while these options are available, are people applying for this?
Enos says there are two sides to it. “In the past, brokers have gone through affordability calculators and tried to achieve borrowing levels to those points with certain lenders and not received the desired results after processing those calculators. After being declined, the broker may decide not to approach those lenders again with new customers who do need those stretches.”
“It might be a case of going back and seeing how lenders have tweaked their LTIs and affordability assessments because they could be pleasantly surprised by the results that they get.”
On the other side, Enos comments: “There is an element on the level of income that clients are earning and when those levels are hit or breached then there’s more of a propensity to achieve higher multiples as well.”
“Clients are also being cautious because we have been going through a cost of living crisis and a stressed market in terms of prices going up. Clients have got to settle down and feel that they have a few more pounds in their pocket and might feel more comfortable stretching themselves and borrowing more money.”
From a broker perspective, Rainstone Money mortgage broker Matthew Lawrence adds: “Lenders are coming out saying that the LTI can be stretched to 6x but when you take into account affordability, people are spending a lot more money on things such as car lease deals compared to what they were five years ago.”
“It comes down to the affordability side, which is a challenge and the client side, in that they are conscious about that expenditure. We are at a stage now where the client has to make the decision, they need to curb their spending or they’re at the point of having to sell their house.”
“It is tough and a lender can put all the options under the sun out there but if the client can’t meet those parameters it’s a pointless proposition. However, there will be a lot of clients that can meet the criteria but it’s about finding the right clients and doing it in the right way for those clients.”
