Despite many lenders relaxing their loan to income criteria, the average UK homebuyer is still priced out of the market unless purchasing with a partner.
The current average loan to value, or the multiple of salary that a lender will loan to a buyer, has increased from 3.87 to 4.12 in the last ten years – a 6.5 per cent increase, according to new data.
While this lending criteria has traditionally sat between 4 to 4.5 times income for a single applicant and 3.5 to 4 times income for joint applicants, last year big lenders started to lift caps to offer as high as 5.5 for borrowers meeting certain criteria, with some going as high as 7 times income for certain applicants, mortgage advisory Henry Dannell found.
Although these increases were met with a degree of scepticism and concern, the research by Henry Dannell suggests that for some homebuyers, even this higher rate would see them struggle with the current cost of getting on the ladder.
With the current average house price sitting at £270,708, a 10 per cent mortgage deposit would require the average buyer to front £27,071 when looking to buy, leaving £243,637 to be borrowed.
However, with the average UK income sitting at £31,447, even an above-average loan to income rate of 4.5 would leave them £102,126 short of a purchase.
In fact, even if they did commit to 15 years of fixed rates and opt for a loan to income rate of 7 times their earnings, they would still be £23,508 shy of the current average house price.
The picture is, at least, a little better for those looking to purchase with a partner. A joint application, based on the current income of the average UK male and female and a 10 per cent deposit, would require a loan to income rate of around 3.92 in order to borrow enough for the average UK home.
“We’ve seen some lenders relax their criteria in recent months and despite an increase in interest rates, homebuyers continue to benefit from some very favourable conditions when it comes to borrowing, ” said Director of Henry Dannell, Geoff Garrett.
“However, house prices have also climbed considerably and this has put a squeeze on affordability for the average buyer, particularly those attempting to go it alone without the additional support of a second income when borrowing,” he continued.
Garrett told City A.M.: “Of course, the property market is extremely diverse and so varying levels of income and property values will bring different levels of affordability.”
“Your loan to income ratio will also be influenced by a range of factors such as employment type, base salary, any additional earnings, credit history and whether you are full-time or self-employed,” he explained.
“But with house prices expected to climb further still, it does highlight the importance of saving a substantial deposit and ensuring you find the very best deal to suit your personal situation when you are looking to agree a mortgage in principle,” Garrett concluded.