However, with inflation rising and the Bank of England hinting at an interest rate rise sooner rather than later, the money markets are pricing in a rate rise as soon as next month. Lenders have started raising some of those cheap rates so those looking for a large mortgages may need to move sooner rather than later to get hold of one of the best deals.
With many buyers moving for more space as a result of living with the pandemic, taking on a larger mortgage to pay for that bigger home has become more achievable because of lower mortgage rates. But as they begin to rise, it is not so easy to make the numbers add up. With many people still planning a move, higher mortgage rates will mean your money won’t go as far as it might have done, restricting your choice of property.
It is important not to panic though. While there is talk of rising interest rates, it hasn’t happened yet. What’s more, we are talking about rates increasing from an extremely low level, with base rate at 0.1 per cent since March 2020. A 25 basis points increase in interest rates would mean an extra £64 a month, or £756 a year on a £500,000 mortgage with an original rate of 2.5 per cent and 25 years left on the mortgage term.
While the trend for mortgage rates is upwards, there is some good news for higher earners with lenders offering more generous income multiples. Clydesdale is the latest lender to introduce higher loan-to-income (LTI) multiples for certain borrowers, with enhanced income multiples of 5.5 times for newly-qualified professionals, such as accountants, architects, barristers, chartered surveyors, dentists, medical doctors, pharmacists, pilots, solicitors or vets with an income of £40,000 or more.
Halifax has also increased its maximum LTI multiple from five times earnings to 5.5 times. The top LTI applies to those earning more than £75,000 who are borrowing up to £1m at less than 75 per cent loan-to-value. Unfortunately, the cap remains at 4.49 times earnings for the self-employed, which also applies to those earning less than £40,000.
Approaching your own bank and assuming you will get the most generous loan based on your income and overall affordability is not necessarily the best approach. While you may stumble across a high-street lender offering the best terms for your particular circumstances, you are immediately ruling out the private banks, which can be a better option for the right customer.
Those who are looking for a mortgage or who haven’t refinanced in some time should speak to a whole-of-market broker, such as AWS Private Finance, about securing a deal. Most mortgage products last between three and six months, depending on the lender, so even if you don’t need a mortgage immediately you can book a rate for when you do. If you require a large mortgage, we will identify whether a private bank or high-street lender offers the best option and pricing. We have excellent relationships with the private banks so can recommend one where required, but we will also consider more mainstream lenders too. Please get in touch for more information.