By Ashley Pearson, Head of Intermediaries at The Loughborough Building Society
Higher income multiple mortgages have historically been associated with certain types of high earning professions such as doctors, accountants, lawyers and dentists. For many individuals, this has meant that the chances of securing a more favourable income multiple than the standard 3.5 to 4 times income offered by the majority of lenders was extremely low.
Recently however, the evolution of this particular affordability equation has meant that those borrowers seeking a higher multiple must now satisfy an income threshold, rather than work in a specific profession. A shift which makes opens the affordability door to a wider group of borrowers.
Inevitably, lending approaches will differ when it comes to affordability attitudes and calculations. For example, our approach means that single applicants earning £50,000 a year or joint applications earning £75,000 a year, could qualify for a higher income multiple mortgage at 5.5 times their income, regardless of their profession. This also extends to self-employed borrowers provided they have a minimum of one year’s trading accounts. Other lender may still depend on key professions or have contrasting single or joint earning figures which need to be reached.
Many of the approaches of more specialist lenders in this area – who can adopt more common-sense underwriting processes – reflects a more modern approach to lending, and acknowledges the fact that high earners may require more borrowing flexibility than a traditional mortgage product may allow.
This could be because they have found a more suitable property for their needs; perhaps they require a larger home, one that is in a more desirable location, or one with features they value, such as an extra couple of bedrooms, a larger garden, or closer proximity to key amenities and transport links.
Higher income multiple mortgages can also help borrowers who may be planning for the long term and would like to move house before they have children and start a family. In some cases, they may also be thinking ahead to when they may need some extra space should they need to care for family members such as parents in their later years.
In recent months, we have certainly seen an uptick in the number of higher income multiple mortgage applications. Many of these have come from self-employed individuals who meet the income threshold and policy requirements needed to secure a larger loan.
All these individuals work in a variety of professions and in each case, satisfied the lending criteria required to secure a loan. They were also looking to buy a higher value home and take another step up the property ladder.
One thing that many self-employed borrowers seek is the ability for dividends or net profit – usually whichever is more favourable – to be considered from an affordability standpoint. This can prove a useful tool for improving affordability as it enables those individuals who meet the lending criteria to secure a higher level of borrowing of 5.5 times income with an LTV of up to 80%.
In the current higher interest rate environment, this could prove to be the difference between a borrower securing a property they want and can afford, or simply walking away. For brokers, it provides another tool to help high-income borrowers achieve their homeownership dreams by maximising their borrowing potential.
Providing personalised and flexible mortgage solutions that cater to the ever-changing needs of clients is crucial, particularly in a world of shifting social dynamics and employment.
Earning a higher income no longer equates to working in a certain profession and there are many people in the UK today who meet the salary threshold for a high-income multiple mortgage that work in technology or construction rather than finance or medicine.
For brokers with high earning clients, including those who are self-employed, exploring the breadth of available options from lenders will provide them with greater flexibility to help these clients and provide them with access to the type of mortgage product they need and deserve.