Saturday, 21 October 2017

Bank hopes loan-to-income rule change will help buyers

Bank hopes loan-to-income rule change will help buyers

THE Bank of England recently announced that it was relaxing the rules around high loan-to-income (LTI) mortgage lending.

It means buyers could now gain a larger mortgage enabling them to afford a more expensive property.

Previously, lenders had to report their LTI ratios by individual financial quarter.

However, the recent changes mean lenders are now able to monitor and report their LTI ratios quarterly on a rolling 12-month basis.

The first to take advantage of this change is Leeds Building Society, which will now potentially lend up to 4.75 times loan to income — up from 4.5 — to those wanting to move home or remortgage at a ratio of up to 85 per cent loan to value.

Applicants will be stress-tested to ensure they can afford their mortgage now and in the future should interest rates increase.

In addition to helping buyers afford their dream home, the mortgage industry believes this change will enable lenders to have more flexibility and be able to better cope with fluctuations in business volumes. Greg May, director at Romans, shared his view on the subject, saying: “We predict that Leeds Building Society will be the first of many to increase their LTI ratio and feel this is a benefit not only for lenders but also borrowers who may need a financial boost to help bridge the gap between their earnings and property prices in their local area.

“The Bank of England’s changes were welcomed by mortgage brokers, many of whom found the fixed system inflexible. In order to avoid accidentally exceeding the fixed limit, many scaled back lending at higher LTIs to avoid penalisation.”

At present, Leeds Building Society is only offering this new rate to borrowers who already have a mortgage and can demonstrate the ability to keep up with the monthly payments.

A statement from Leeds Building Society indicated that they will continue to lend responsibility and assess all mortgage applications based on affordability criteria.

Property

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