Affordability criteria making it increasingly hard to get large loans

Affordability criteria making it increasingly hard to get large loans

Lenders’ varied affordability criteria are making it increasingly hard for borrowers to get the loan size they need.

The percentage of lenders able to meet the loan amount requested by a borrower fell from 80 per cent in January to 73 per cent in June, marking a 7 per cent drop in six months.

This was despite lenders increasing their average largest loan size nearly 4 per cent to £243,250, from £234,244 in January. 

The data, collected across 40 lenders by affordability criteria specialist Mortgage Broker Tools, found starker differences for first-time buyers.

The average largest loan size available to first-time buyers has increased by 13 per cent in the last six months.

But lenders are increasingly failing to meet this demographic’s needs. In the last six months, the number of lenders able to meet first-time buyer loan requests dipped 14 per cent - more than double the dip in the wider borrower market.

The average maximum loan size for a first-time buyer stood at £261,290 in June, 13 per cent more than it was in January, at £230,555.

“Even though the lenders are loosening restrictions and offering larger loan sizes, borrowers are finding it harder to secure the loan size they require,” said Tanya Toumadj, Mortgage Broker Tools’ chief executive.

She continued: “We’re seeing an increasingly diverse approach to affordability calculations and this means borrowers, with their own unique set of circumstances, are able to secure very different loan sizes from one lender to the next.”

Industry experts have called for better accessibility criteria and more product optionality in the 95 per cent loan-to-value space in particular.

Arjan Verbeek, co-founder and CEO of aspiring digital lender Perenna, told FTAdviser “the combination of the 4.5x loan-to-income limit and stress testing mean many simply will not be approved for the mortgage they need, despite being able to afford the monthly payments”.

Lenders re-entering the 95 per cent loan-to-value market independently include Accord, Metro Bank, and Newcastle Building Society.

Lenders such as Virgin Money, HSBC, and Barclays also took part in the government's 95 per cent mortgage guarantee scheme, which guarantees a portion of the high-risk mortgage, hence minimising the risk of a default and any possible losses for the lender.

Despite this Your Mortgage Decisions’ director Dominik Lipniki said there was still “nowhere near enough” choice for borrowers in this space.

“The fact that the housing market has stayed strong throughout the pandemic should give lenders more confidence in the higher loan-to-value sphere and more products being made available is welcomed," he concluded.