Money News
Confidence in the housing market is increasing as lenders raise their income multiples and lower rental cover. This comes as recent reports suggest that the housing market is currently stable and that we are unlikely to experience the 'crash' that some people had predicted.
Over the last month both buy-to-let and residential mortgage providers have begun to revise their rental/income criteria, opening up the availability of their products to a wider audience, whilst implying confidence in the market, according to financial data provider, Moneyfacts.
Lisa Taylor from moneyfacts.co.uk notes that several buy-to-let providers have chosen to lower the minimum interest cover they require, commonly reducing from 130% to 125% of interest cover, moving the industry average towards the 125% mark.
Mortgage Express, for example, has now reduced rental cover from 125% to 120% for fixed rate deals of 5 years+. All other products are seeing cover reduced from 130% to 125%
Over at Royal Bank of Scotland Mortgages Direct rental income cover is also being reduced from 130% to 125%.
And at Standard Life cover is being cut from 130% to 120%.
In the more general residential sector Chesham BS and Progressive BS have announced this month that income multiples on residential mortgages have increased, in most cases by a factor of 0.25. The move by Progressive, which used to have a maximum income multiple of 3x main income, is of particular significance.
The new income multiple criteria at Chesham are 3.5 x first income + 1 x second income, 3 x joint income. At Progressive (Northern Ireland only) multiples are 4 x single income or joint income (LTV >80%), 4.25 x single income or joint income (LTV <80%).
Whilst these initiatives will be welcomed by many consumers seeking to get a first step on the property ladder or those looking to take the next move up the property market, they will have a detrimental effect on borrowers' day-to-day incomes.
Take for example Progressive. A couple earning a combined salary of £50K, (£25K individually), using the society's new income multiples, could be looking at a mortgage of £200K. Assuming an interest rate of 5% and a mortgage term of 25 years, their monthly payments would be in the region of £1,170. Or almost 40% of their disposable income.
Food for thought.
06 June 2006 © Moneyextra.com
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