Mortgage lender Scottish Widows have just announced that they will be introducing some changes to their mortgage income cap for affordability calculations on straight mortgages and remortgages. What does this mean exactly? It means that Scottish Widows will be accommodating for higher income multiples and higher borrowing amounts. A great sign as the mortgage and property market recovers nicely from a disastrous end to 2022.
What Is a Mortgage Income Cap
When lenders assess mortgage affordability, they will often have a mortgage income cap in order to regulate further how much money someone can be lent. So, as well as the usual affordability criteria surrounding credit commitments, a lender may say that the absolute maximum that they are willing to lend a potential borrower is 4.5X their annual income, for example.
In the wake of the mini-budget at the end of 2022 and the subsequent financial crisis and interest rate hike, many mortgage lenders massively restricted their mortgage affordability to discourage borrowers or at least encourage borrowers that they considered less risky to lend to. Along with increasing mortgage rates and inflating monthly outgoing commitments at affordability stage, lenders also lowered the mortgage income cap in most of their affordability calculators.
A lot of lenders who once offered up to 5.5X salary borrowing were reducing their cap to as low as 4X income, meaning that people who would have easily been able to afford a mortgage prior to the financial crisis were being unfairly penalised and had their mortgage applications rejected or were offered a much lower loan than they needed. But, now that the market and the economy seems to be making a recovery, there are big changes happening in the mortgage world. Starting with mass rate reductions that are happening literally every day and continuing with new changes to mortgage income caps from lenders like Scottish Widows.
Up To 5.5X Income Mortgage With Scottish Widows
In a communication to brokers this morning, Scottish Widows have said that they will be raising their maximum loan to income cap for borrowers, which is great news and a sign that lenders are becoming more confident in borrowers. Here is the information that Scottish Widows has shared:
‘From today we have made improved changes to the loan to income (LTI) caps applied as part of our affordability calculation. For applications with an element of self-employed income, where the total income on the application is greater than £75,000 and the loan to value (LTV) up to 75%, our standard LTI cap has increased to 5.50X income. For all other self-employed cases the LTI of 4.49X income will remain. In addition, we have also amended some of our other LTI limits and the table below shows the LTIs that will now apply:
Speak To a Mortgage Broker About 5.5X Income Mortgages
We predict that many lenders will start to increase their maximum mortgage income caps over the next few months, with more lenders offering 5 and 5.5X income mortgages. The simple reason for this being that things are improving in the market and lenders are getting hungry to lend. If you or anyone you know wants to know more about 5X or 5.5X income mortgages, please give our team a call today. We are here to help.