First-time buyers can borrow up to £66,000 more on average thanks to a new mortgage on offer from Leeds Building Society.
Britain’s fifth largest building society will allow some first-time buyers to get loans of up to 5.5 times their annual income, up from the usual 4.5 times.
However, they must meet certain criteria, including a minimum household income of £40,000 to qualify for the product, known as ‘income plus’.
The building society says the average first-time buyer could borrow up to £356,000 through income plus, compared to £290,000 under standard loans – a difference of £66,000.
Single and joint borrowers, including the self-employed, can apply, with loans covering up to 95 percent of the property value.
> When will interest rates fall again? Predictions about when the base rate will be lowered
Boost: Aspiring homeowners with a minimum household income of £40,000 can borrow up to 5.5 times their income from Leeds
Income plus mortgages are fixed agreements for five years. Rates start from 4.4 per cent for those who buy with a deposit of at least 25 per cent, with a £999 fee charged.
Those who buy with a 5 per cent deposit can get a rate of 5.15 per cent with a £999 fee, or a rate of 5.19 per cent with no fees.
To apply, prospective homeowners must use a mortgage broker; they cannot go directly to the mortgage bank.
Richard Fearon, CEO of Leeds Building Society, said: ‘We are proud to be launching Income Plus to put home ownership within the reach of more people and help overcome two of the main barriers facing potential homeowners: the income is outpaced by home prices and the difficulty of saving a large down payment.
‘By combining higher loan-to-income with better assessments of how much borrowers can afford, we can lend an average of £66,000 more and help people get closer to their roots in their community by buying their own home.’
David O’Leary, executive director of the Home Builders Federation, also welcomed the new products and said an increase in demand from first-time buyers will only be a good thing for the home building industry.
He said: ‘The lack of adequate mortgage finance is a major barrier for many households who could otherwise take their first steps on the housing ladder, and this suppression of effective demand for new homes is holding back housing delivery.
“If we are to get anywhere close to the government’s ambitious housing supply targets, lenders will play their part and support first-time buyers.”
Where else can starters get a larger mortgage?
Leeds Building Society is not the only one offering first-time buyers the opportunity to borrow more than the standard income of 4.5 times.
In September, Halifax announced it would make £2 billion available for first-time buyers who needed to borrow up to 5.5 times their annual income.
To qualify for what Halifax calls its ‘starter boost’, buyers need a total household income of £50,000 or more, which must come from employment. This is therefore slightly more restrictive than what Leeds offers.
Halifax also requires first-time buyers to purchase a property with at least a 10 per cent down payment to qualify for the high loan multiples.
Also in September, Nationwide became the first major lender to offer first-time buyers the opportunity to borrow six times income on mortgages covering up to 95 percent of a property’s value.
Nationwide’s ‘helping hand’ products mean a first-time couple with a combined income of £50,000 can borrow up to £300,000, compared to £225,000 at standard income multiples – an increase of €75,000. That assumes a five percent down payment and no other costs that impact affordability.
April Mortgages, which launched its first products in April this year, will lend up to six times annual income to eligible first-time buyers, home movers and people refinancing.
It applies to both individual and joint mortgage applications. This means that two people earning £50,000 together could potentially borrow up to £300,000.
Another relatively new lender, Perenna, also offers up to six times the borrower’s income, provided he or she meets certain criteria.
To get one of these mortgages, borrowers must also pass the lender’s credit checks.
Rachel Springall, finance expert at Moneyfacts, said: ‘Raising a deposit is a major issue for buyers facing a declining supply of affordable housing, and it will take time to improve.
‘Product innovation or improvement is to be celebrated and support for new buyers will be integral to keeping the mortgage market moving.’
Some links in this article may be affiliate links. If you click on it, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow a commercial relationship to compromise our editorial independence.