Banks are cutting what you can borrow for a mortgage: is it still easy to obtain a good deal?

Homebuyers happen to be dealt a blow after two UK’s biggest banks lowered their limits how much they will lend to mortgage applicants.

Barclays and NatWest have grown to be the latest lenders to connect new stipulations to their mortgage deals following the coronavirus outbreak.

Here, Which? explains the way the restrictions may affect your mortgage chances while offering suggestions about tips to get a good mortgage deal.

Lenders placing caps on borrowing

When are applying for any mortgage, just how much you’ll have the ability to borrow is generally capped at a multiple of the annual earnings.

Commonly, lenders allow you to borrow around 4.Five times your earnings, even though some stretch as high as five or perhaps 5.5 times of the earnings.

So if you’re purchasing a home with your partner and also have a collective annual income of lb50,000, you may be in a position to borrow lb225,000 to lb275,000.

Barclays previously boasted among the highest limits, at 5.Five times annual income for some customers, however this week it has lowered its cap to 4.49 times.

NatWest, meanwhile, has reduced the amount self-employed borrowers can borrow to 4.25 times their annual earnings, down from 4.9 times.

These moves imply that some buyers might find themselves priced from properties they previously thought they might be capable of getting a home loan on.

How do lenders use income caps?

Income caps are simply one way lenders assess your affordability and just how they’re set varies from lender to lender.

Generally, most banks play one of those three methods:

• No cap No freely available figure, says decisions based on overall affordability.
• One cap One rule for all lending (eg up to 4.Five times income)
• Several caps Limits vary based on income (eg those earning over lb50,000 can borrow 4.Five times income, those earning less can borrow 4 times), or loan-to-value ratio (eg those trying to get 85% deals can borrow 4.Five times income, but those applying for 90% deals are only able to borrow 4 times).

Which banks will lend the most?

The interactive table below shows the borrowing caps set by virtually all of the lenders currently offering mortgages.

Simply type in the name of a bank or building society to get started.

How much can one borrow?

You may use the calculator below to obtain a concept of how much you might be in a position to borrow when applying for a home loan.

How mortgage restrictions are affecting borrowers

The changes from Barclays and NatWest come at any given time when lenders are struggling to cope with a backlog of applications and a surge in interest since the stamp duty cut.

First-time buyers

Buyers with small deposits have experienced the largest post-pandemic changes, with 90% and 95% mortgages effectively disappearing from the market.

Those that do still offer 90% deals have imposed restrictions.

Nationwide has capped the amount of a buyer’s deposit that come from a member of the family, while Virgin Money has launched seven and 10-year fixes with maximum relation to 25 years.

Homemovers and remortgagers

The decision from Barclays to cap income multiples will have the most impact on the largest earners (who qualified for that 5.Five times income previously available).

It’s also affecting people currently in the process of purchasing a house, a number of whom have seen their mortgage offers revised downwards. NatWest’s change, meanwhile, is another blow for self-employed buyers.

Elsewhere, buyers and remortgagers who've been furloughed will find it difficult to obtain that income taken into consideration when applying for a mortgage, or will discover that overtime and bonuses won't be contained in lenders’ calculations.

Does this mean it’s impossible to get a home loan?

This might all sound like bad news, but mortgage approvals continue to be going through and it’s still easy to get a good rate.

Data from the Bank of England shows that 66,281 mortgages were approved in July, only 1% down on exactly the same period a year ago.

To have the best possibility of getting a mortgage in the current climate, you’ll call for a good-sized deposit (with a minimum of 15%), a good credit background and a stable income.

Unfortunately, if banks consider you high-risk (eg you have a small deposit and have been furloughed), you may benefit from postponing your move before the mortgage marketplace is a smaller amount volatile, as even though you could possibly get a loan at this time it may be in a higher rate.

If you’re unsure about your options, it can make sense to speak with a whole-of-market mortgage adviser, who are able to assess the criteria utilized by all lenders to locate a suitable deal.

Best mortgage rates

The tables below from Moneyfacts show the present cheapest rates on two-year and five-year fixed-rate mortgages open to people purchasing a home.

As you can see, rates for mortgages between 60% and 80% loan-to-value (LTV) remain really low, but there’s a large leap on price on 90% deals, reflecting how few choices are now available for buyers having a low deposit.

Two-year fix

Five-year fix

• Source: Moneyfacts. Rates correct as of 9 September 2021.