We want to buy our first home and have a sizeable deposit ¿ but how can we borrow as much as possible?
We want to borrow as much as possible - which mortgage lenders currently offer the highest income multiples? We heard that West Bromwich had just increased its to 4.75x? Via e-mail.
Mortgage restriction: How can we maximise the amount we can borrow?Lee Boyce, from This is Money, says: According to recent Council of Mortgage Lenders figures, loans to first-time buyers in the first four months of this year are 11 per cent higher than for the same period last year.
It comes after government schemes – such as Help to Buy and Funding for Lending – have helped thaw the market.
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Funding for Lending for instance, has helped bring down mortgage rates. According to information website Moneyfacts, mortgages for people with a deposit of 15 or 20 per cent now make up 37 per cent of the market, which is up on a year ago.
And someone with a 20 per cent deposit will now be typically offered a cheaper rate of 3.73 per cent, compared with 4.36 per cent last July.
Average deposit values for first time buyers also fell to 19 per cent in April from 20 per cent the previous month, suggesting lender demands for higher deposits from would be homeowners are easing.
So could Help to Buy enable you to maximise the amount you can borrow? I asked a mortgage expert.
David Hollingworth, from London & Country Mortgages, says: The Help to Buy scheme is made up of two separate strings. The guarantee scheme is not due to be unveiled until the beginning of next year.
Although there is no detail as yet it aims to help improve the availability and price of mortgages for those with small deposits. We will have to see how that takes shape but I don’t expect it to allow you to take a larger mortgage than is affordable.
The part of the Help to Buy scheme that is already up and running offers help through an equity loan on new build property only.
This could be up to 20 per cent of the purchase price but carries no cost for the first five years and then attracts a nominal interest charge, initially 1.75 per cent.
The remaining 80 per cent of the purchase price is made up from the borrowers own deposit which must be at least five per cent plus mortgage finance.
If you are keen on a new build property then it could be worth exploring further and you should talk to your local Help to Buy agent to get a feel as to whether you would meet the eligibility criteria. It’s not limited to first time buyers and is available on purchases up to £600,000.
Looking more broadly at the question of income multiples. lenders now typically use affordability models to judge the maximum borrowing level available.
Rather than applying a one size fits all multiple these models look more closely at commitments, outgoings and monthly budgeting.
Low outgoings and a good credit score will help open up higher borrowing levels and that could be as much as five times income. However, more typical levels would be 4-4.5x income.