With the government firmly in their corner, an increasing number of lenders are announcing that they will provide larger loans to mortgage borrowers relative to their earnings. The latest example came this week when NatWest revealed it has increased its maximum Loan to Income (LTI) for joint applicants earning more than £150,000, enabling them to borrow up to 6.5 times their income. However, one broker has issued a stark warning: just because you can borrow more does not mean you should.
Broker's Caution on Higher Borrowing
Gaurav Shukla, CEO of Marlow-based Home Me Mortgages, cautioned that many people read about their ability to borrow more and rush to a broker wanting to do exactly that. They see they can now technically afford a larger property or move to a nicer area and demand, 'Get me that mortgage.' Shukla emphasised that there is no such thing as a free lunch. Borrowing more inevitably comes with increased risks, and people need to understand that. Those who max out their mortgages often leave themselves little, if any, financial wriggle room.
This means that if unexpected costs occur or the cost of living rises as a whole, their finances can come under pressure quite quickly. And that is where things start to go wrong, Shukla warned.
Cost of Living Concerns
Shukla highlighted that expected rises in the cost of living are a particular concern for those considering taking on bigger mortgages. While inflation dropped this week, there is a risk that people may think bills will continue to fall. However, the full impact of the Middle East conflict has yet to hit wallets and will likely do so over the summer or early autumn. This means a new cost of living crisis could strike precisely when someone has completed on a dream home with a maxed-out mortgage.
Shukla advised that anyone considering borrowing the most they can relative to their incomes needs to be very clear about how rising inflation could impact their finances. They must ask themselves whether they are prepared to sacrifice their lifestyle if costs start to bite. If borrowers are prepared to have one less holiday a year or eat out less if bills increase across the board, that is a positive. But many people do not like making sacrifices, and that is when they turn to credit cards and personal loans. And that is when things can quickly spiral out of control.
Final Advice
The moral of the story, Shukla concluded, is that anyone considering borrowing the most they can must go in with their eyes wide open.
