For years, would-be homeowners have been told that borrowing around four-and-a-half times their salary was roughly the ceiling.
Now that ceiling is being pushed higher with a number of lenders offering mortgages of up to 6.5 times income for qualifying first-time buyers.
This comes as lenders are increasingly stretching their affordability criteria to help people buy homes in a market where house prices remain out of reach for many.
According to Nationwide, the average price of a British home rose 0.2 per cent month-on-month in August to £275,465 – the first increase since April.
David Hollingworth, associate director at mortgage broker L&C Mortgages, said this has been “a growing trend in recent years, with more expanding their criteria in the last 12 months”.
This month, Coventry Building Society has increased the loan to income ratio for eligible borrowers to 6.5 times.
Nationwide offers eligible first-time buyers up to six times income through its Helping Hand proposition, while Halifax offers up to 5.5 times income through its First Time Buyer Boost.
Some lenders go even further such as April Mortgages which offers up to seven times income in certain circumstances.
But there is an important catch, experts have warned. A mortgage advertised at 6.5 times salary does not mean everyone can borrow 6.5 times their salary – or that they should.
Here, we explore whether these are considered a shortcut onto the property ladder or a debt trap waiting to bite.
What does 6.5 times income actually mean?
It means you could borrow up to 6.5 times your annual household income and the difference can be enormous.
Lucian Cook, director of residential research at Savills, has modelled what different borrowing multiples would mean for a first-time buyer household earning the current average income of £62,000, using a 4.7 per cent mortgage rate and a 30-year repayment mortgage.
Those are gross-income figures, before tax and other household spending. Cook says the average first-time buyer is not currently borrowing anywhere near the new maximums but an increasing number are doing exactly that.
Speaking to The i Paper, he said: “The average first-time buyer is currently borrowing around 3.5 times their income on average, meaning their mortgage payments account for around 22 per cent of their gross income at current mortgage rates.
“With market rents typically accounting for 30 per cent of household income, that is a figure which leaves them a bit of headroom. But when you go much above a 4.5 to five times multiple, things start to look more stretched.”
At 6.5 times income, a £62,000 household would be borrowing about £403,000 – with repayments of roughly £25,000 per year at the assumptions used by Savills.
Lenders aren’t handing these out to anyone
The crucial distinction is between an advertised maximum income multiple and what a lender will actually give you.
Justin Moy, managing director of EHF Mortgages, says around 25 to 30 lenders now have enhanced income multiples, although he argues that “enhanced affordability” is a better description.
He said: “All of the lenders in this space are still assessing what is affordable, and will factor in the cost of pension contributions, service charges on leasehold properties, student loans, credit cards and car finance, amongst other normal commitments.”
That means someone with a £60,000 salary and significant car finance, student loan repayments and other commitments could find their borrowing limit considerably lower than 6.5 times salary in reality.
Hollingworth made the same point, explaining that some lenders have been pulling back on how much they will let people borrow to avoid overshooting the 15 per cent limit.
The 15 per cent limit caps the proportion of a lender’s new residential mortgages that can be at 4.5 times income or higher.
He said: “There is a growing range of options for those that want to borrow beyond what for a long time seemed the norm of around 4.5 times income. These enhanced multiples may be open to different borrower profiles though so there are often some eligibility requirements.
“It’s also really important to stress that the overarching test is individual affordability, but the enhanced multiples can give a higher available ceiling where those affordability requirements can be met.”
Could a 6.5 times mortgage come back to bite you?
When we asked experts this question, the most common answer was “potentially”, particularly if a buyer has to sacrifice too much of their disposable income to meet the repayments.
A bigger mortgage can solve the problem of getting through the front door but can also mean very little breathing room once inside.
Cook warns that borrowers looking to make the number work may end up having to alter the structure of their mortgage.
He said: “Borrowers either have to look at extending their mortgage term or going part capital repayment, part interest only.
“And so, despite being given a bit more latitude in lending criteria, lenders will be reluctant to push things too far, too often, unless the borrower has other means off paying of some of mortgage debt to make things more manageable over time.”
What happens when the borrower wants to move or remortgage?
Muy says some of the enhanced multiples are specifically aimed at first-time buyers, which could create difficulties later if someone has borrowed right up to the limit.
He explained: “If any borrower does ‘max’ their position, for many lenders those multiples are just for the first-time buyers, so subsequent attempts to remortgage or move home may not be able to achieve such levels of borrowing, perhaps we are a bit early in this new world of affordability to see that knock-on effect.”
In other words, getting the keys is not the end of the affordability test.
Are there better ways to buy more?
For some buyers, a higher multiple may be the least-bad option, particularly where renting is expensive and the alternative is being locked out of home ownership for years.
But buyers have other levers to pull. A bigger deposit reduces the amount borrowed and can potentially unlock cheaper mortgage rates. Buying a cheaper property, looking further afield, or waiting and saving for longer can reduce the size of the debt.
There is also the option of a longer mortgage term, although that reduces monthly payments at the cost of paying interest for longer.
Some buyers may choose to fix their mortgage for a longer period to give themselves certainty. Nationwide’s higher-multiple Helping Hand, for example, is available on fixed rates of five years or longer.
April Mortgages goes further in a different direction, offering up to seven times income for borrowers meeting its criteria, including a household income of at least £50,000, up to 85 per cent loan-to-value and a 10-year-or-longer fixed rate.
So, should you take a 6.5 times mortgage?
Unfortunately, there is no universal answer.
For someone with a strong and stable income, few debts, a sizeable deposit and confidence that their finances will remain comfortable, a higher multiple could provide a route into a home that would otherwise be out of reach.
But for someone already relying on every penny of their monthly income, it could turn home ownership into a constant financial squeeze.
Hollingworth said: “Just because you can, doesn’t mean you should. I don’t think that generally borrowers want to take a bigger mortgage than necessary, but where it could help to boost the borrowing and accelerate their first step onto the ladder, for example. I think it can be a useful option that could make it more achievable for some.
“There is a need to think about how comfortable you will be with the monthly payments that you’ll have to take on for a higher borrowing.”
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