Bigger mortgages back on the menu

Aspiring homeowners can now borrow much more after banks raised the cap on mortgage sizes.

Lenders have begun to relax affordability rules for borrowers after tightening them last year amid worries over the health of the economy.

High street banks including NatWest, Lloyds and HSBC will once again offer mortgages worth five times a borrower’s yearly salary, while Santander and Barclays now lend up to 5.5 times an applicant’s income.

For most of last year, borrowers were only eligible for loans worth up to 4.5 times their income.

This means home buyers will now be able to qualify for much larger loans. For example, a couple with a combined income of £ 75,000 would be able to borrow up to £412,000 rather than £300,000 a few months ago.

Banks’ easing of affordability criteria is the latest sign the mortgage market is opening back up after a year of restrictions.

Hina Bhudia of Knight Frank Finance, a mortgage adviser, said the vaccine rollout had made lenders more confident.

Chris Sykes of Private Finance, a mortgage broker, said as the stamp duty holiday ended, lenders would have to be more competitive to fight for new business, which typically means affordability rules are relaxed.

This will come as good news for firsttime buyers in particular, who saw their mortgage options slashed last year. Lenders are also starting to reintroduce deals for borrowers with small deposits.

According to analysts at Moneyfacts, there are now 518 deals available for borrowers with a 15pc deposit, up from the 323 six months ago.

Meanwhile, the number of deals for buyers with a 10pc deposit has climbed from a low of 48 in August to 277 today, though this is still significantly fewer than the 779 deals available in February 2020.

Borrowers with a 5pc deposit will still struggle to find a mortgage, with just five deals currently available, some of which come with restrictions.

Ms Bhudia warned that mortgage interest rates for this group remained much higher than they were before the pandemic.

Two-year fixed-rate deals for borrowers with a 10pc deposit carry an average interest rate of 3.56pc, much higher than last year or even six months ago when fewer mortgages were available.

Interest rates on deals for borrowers with a 15pc deposit have also jumped by 0.56 percentage points.

However, high street lender TSB cut rates on low- deposit deals last week, suggesting more banks may become more relaxed about lending.

Banks are also beginning to consider bonuses once again when assessing whether a borrower can afford a mortgage. Though traditionally an acceptable form of income when applying for a home loan, some lenders refused to take bonuses into account last year when assessing affordability.

Restrictions remain in place for selfemployed workers, who in some cases are having to find a 40pc deposit to qualify for a loan.