Why are lenders attaching new stipulations to their mortgage deals?

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Two of the UK’s biggest mortgage lenders have imposed new restrictions on their mortgages, joining others who had already made changes. Anyone looking to take out a new mortgage deal is potentially affected, with the changes affecting everyone from the self-employed to those on larger incomes who may now find their mortgage offers reduced.

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What are the new restrictions?

Barclays and NatWest have reduced the amount home buyers can borrow. Lenders cap lending as a multiple of the borrower’s income and apply affordability and stress tests.

Barclays previously capped lending at 5.5 times annual income, although not all customers were given this deal. This has now reduced to 4.49 times. NatWest have implemented a similar policy, reducing the maximum amount for those who are self-employed and therefore potentially at most risk of reduced incomes due to the pandemic from 4.9 times income to 4.25.

Why have the new stipulations been imposed?

The pandemic has caused economic upheaval. Many people have lost their jobs, with many more facing an uncertain future. The furlough scheme ends shortly and support for the self-employed has finished, increasing the precariousness of incomes.

Uncertainty in the employment market increases the risk of mortgage default, making lenders more cautious about lending. This has been coupled with the government’s stamp duty holiday causing a wave of transactions and a backlog of mortgage applications as buyers look to bring forward home moving plans to take advantage of the current savings.

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First-time buyers have found their options for mortgages becoming more limited. Before the pandemic it was possible to find 90 percent and even 95 percent loan to value mortgages, but these have largely disappeared. It is more important than ever for buyers to obtain as much information about mortgages as possible before beginning their property search.

The new restrictions do not mean that it is impossible to obtain a new mortgage. Indeed, the Bank of England’s data for July 2020 showed that there was only a small percentage decrease in the number of mortgages approved compared to the same period in 2019. Buyers should obtain as much information about mortgages as possible to understand their options.

Buyers with a stable source of income and a good sized deposit will still find a range of mortgage deals open to them despite the current restrictions.

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