Nationwide says its LTI addresses affordability, but will it overburden borrowers?
In years gone by, three was the magic number - if you wanted to buy a house, you generally had to borrow three times your salary. Today, loans to income have grown like everything else - in the face of increasing financial challenges, first-time buyers now have the ability to borrow up to six times their income.
Nationwide has declared itself the first major high street lender to offer FTBs this option, on a five- or 10-year fixed rate, up to 95% loan-to-value. It’s a move aimed at supporting the government’s housing ambitions, which it believes will help address the affordability challenge that still prevents many from getting on to the property ladder.
The lender – considered Britain’s biggest building society - said its initiative, effective from today, would give potential homeowners a 33% uplift versus Nationwide’s standard lending, at 4.5 times income, enabling a couple earning £50,000 to borrow £300,000 towards their first home. This is around £75,000 more than standard borrowing. Nationwide also believes it is the first big lender to offer a sub-5% rate at 95% LTV for first-time buyers.
For those trying to get on to the property ladder this may indeed be a godsend – for their parents or grandparents who borrowed before them, this may be a stretch too far. So, what does the industry think?
Newcomer to the market, April Mortgages, increased its maximum LTI to six times income earlier this year. Its recently-appointed director of mortgage distribution, Rachael Hunnisett, welcomed Nationwide following in its footsteps.
“We started from a blank piece of paper and imagined what the market could look like, and then we brought it to life,” said Hunnisett (pictured). “It is wonderful to see this innovative approach now being adopted by high street lenders.
“Affordability is a key challenge facing first time buyers. In recent years, the sector has seen a rise in innovative guarantor-style products which use mechanisms such a joint-borrower-sole-proprietor to give first time buyers an income boost on their mortgage applications. “
She added: “This is wonderful for those who have family who are able to help them, however the 4.5x LTI model is a stretch if you don’t have family income to boost your mortgage application. Higher loan-to-income lending provides a viable alternative for those who can’t lean on the income of family members.”
To what extent does Hunnisett think an offering such as this comes with inherent risks, from borrowing more?
“Advice is key, especially for first time buyers,” she reasoned. “Mortgages are the largest debt many homeowners will ever take on and borrowers should be supported and advised on what is best for their circumstances.”
Read more: First-time buyers underestimate homebuying timeline
How will a six times LTI impact first-time buyers?
Industry commentator David Hollingworth, associate director of communications at L&C Mortgages, said further enhancing the maximum multiple would give more prospective first-time buyers the hope that ownership can become a reality.
“Building an adequate deposit is hard enough especially when the available mortgage borrowing is capped, and prices remain high,” Hollingworth explained. “Opening the potential for higher borrowing amounts for the right borrowers will help target the twin challenges that first-time buyers face across the UK.”
Matt Smith, Rightmove’s mortgage expert, meanwhile, commented that Nationwide’s package of measures is an ‘encouraging development’ in the first-time buyer market, as it directly addresses a major barrier that many face in being able to borrow enough to take that important first step into property ownership. There may be a regional benefit too, he suggested.
“It is likely to be particularly beneficial in areas such as London and the South East where house prices are higher, and currently the average asking price of a home is more than five times the average salary of two people,” he noted. “We’ve been highlighting affordability as a key issue facing first-time buyers this year and calling for innovations that help overcome these challenges in a responsible way. We welcome this move and hope this is the start of a new and accelerated wave of support for first-time buyers.
Smith added: “The timing of this announcement will be welcomed by many first-time buyers, as we’re seeing a much more active housing market than at this time last year, with buyer demand increasing into the traditionally busy Autumn season.”
Mark Harris, chief executive of mortgage broker SPF Private Clients was also positive, welcoming the extra help for first-time buyers, whom he described as being ‘so important to the overall health of the market’.
“Lending up to six times income at 95% loan-to-value, compared with 5.5 times from other lenders, will help those trying to get on the ladder,” Harris observed, “particularly those buying in higher value areas who might not have the assistance of the Bank of Mum and Dad.”
For Serena Smith, mortgage and protection adviser at Mortgages with Serena, Nationwide’s move is a pragmatic response to rising UK house prices.
“As a building society they are really about getting people into homes,” Smith said. “Sadly, properties aren't valued at what they once were so in order to continue to achieve homeownership this is the type of lending we require.
“I think the stretch they are giving is wonderful, as in time these properties are more likely to have increased in value and therefore seen an improvement in LTV. It's future proofing clients now when they need it.”
