New research by bespoke mortgage solution provider, Henry Dannell, shows that 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% increase.
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.
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% 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% deposit, would require a loan to income rate of around 3.92 in order to borrow enough for the average UK home.
Geoff Garrett, Director of Henry Dannell, commented: “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.
"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.
"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. So understanding what you may be able to borrow will allow you to get a good idea of where you sit in the market.
"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.”
