April Mortgages, which specialises in long-term fixed-rate products, will offer the option to some borrowers as long as they have a household income of over £50,000.
The limits are put in place to ensure people can afford to make their repayments, especially if rates rise, but one of the reasons April Mortgages can offer higher borrowing amounts is because it fixes its rates for long periods of time.
Here’s how the deal works, and what experts say you need to look out for.
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The increased borrowing is available to applicants with a household income of £50,000 or more, as long as you have a deposit or equity of at least 15 per cent.
April Mortgages stresses that borrowers will be able to borrow up to seven times their income as a maximum – with the exact value depending on circumstances.
The rates on its loans are far above the cheapest on the market, for example, it offers a fixed rate of 5.40 per cent on its 10-year fix, if you have a 25 per cent deposit, while rates of just over 4 per cent are available from bigger lenders on shorter fixes.
That person would only get £3,289 per month take home pay – assuming they pay 5 per cent into a pension and do not have a student loan – and so they could end up paying more than half their take-home income towards their mortgage.
However, many people who take out long-term mortgages intend to shorten the term in the future.
Mortgage could be ‘dangerous’ according to brokers
Lewis Shaw, of Shaw Financial Services, said borrowing seven times your income could be “a recipe for disaster”.
“One period of ill-health and things will start to unravel very quickly,” he said.
“It is crucial buyers build in breathing space within their budget, rather than stretching to the maximum they are offered. Leaving room for savings, pension contributions and a financial buffer for emergencies is essential for long-term security and peace of mind.”
A longer mortgage term means lower monthly repayments, but paying more in interest over the long term.
Could it be an option for some people?
James Pagan, director of product, portfolio & operation, longer-term fixed rate lender April Mortgages, said: “Longer-term lending offers clients the stability of predictable payments and peace of mind – but we’ve gone a step further by removing the usual compromises.
Shaw said that for some borrowers, who were guaranteed to see their income grow in the future, this sort of deal could be something they might consider.
But Mendes said: “If income does not rise significantly over time, or if personal circumstances change, it may become harder to remortgage or move home later on. Passing new affordability tests could prove more difficult, particularly if lending criteria tighten.”
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