HSBC is increasing the limits on the amount people can borrow for mortgages, in what brokers say is a sign of a more “competitive” lending market.
From Wednesday, the high street lender is upping the maximum amount people can borrow on hundreds of its home loans.
It will mean that some with 10 per cent deposits – or 90 per cent loan-to-value (LTV) – can borrow up to £750,000, rather than the £550,000 of debt they are currently allowed to take out.
But HSBC’s affordability criteria will remain the same, meaning that the changes will generally benefit those on higher salaries.
Here’s a list of how the limits will be changed in full:
- 95 per cent LTV (5 per cent deposit) mortgages increasing from £500,000 to £570,000
- 90 per cent LTV (10 per cent deposit) mortgages increasing from £550,000 to £750,000
- 85 per cent LTV (15 per cent deposit) mortgages increasing from £750,000 to £2m (£1m for flats)
- 80 per cent LTV (20 per cent deposit) mortgages increasing from £2m to £3m
- 70 per cent LTV (30 per cent deposit) mortgages increased to lending over £3m
HSBC has said affordability tests will remain the same, but that these new limits mean some households may be able to consider a bigger range of properties.
“This could make the difference between someone being able to buy the property they want or need, or having to compromise by buying a smaller property with fewer bedrooms, or maybe in an area that is outside the catchment area of their preferred school for their children”, said Chris Pearson, HSBC UK’s head of intermediary mortgages.
Andrew Montlake, managing director of Coreco mortgage brokers, told i: “This is a welcome move from a big lender which shows not only that there is a larger appetite to lend, but also belief in the strength and stability of the housing market.
“Moves like this will enable more borrowers to obtain the finance they need to purchase their dream home and it is a sign that we are entering into a more competitive lending market once more.”
“This move will make HSBC’s core range available to a much broader range of borrowers,” added David Hollingworth of L&C Mortgages, though he said some other lenders offered similar limits to the ones HSBC was introducing.
Borrowers will still have to undergo strict affordability tests when applying for a mortgage. These vary from deal to deal, but generally you are not allowed to borrow more than around 4.5 times your income.
This means for someone with a 5 per cent deposit, they would usually need around £120,000 as a household income to borrow £570,000, although higher amounts can sometimes be possible.
However, experts have warned those who consider taking out big loans to be aware of the possible consequences.
Emma Fildes, a buying agent at Brick Weaver, said: “Those who are expecting to earn more in the future or expecting better rates next year will be able to utilise this to buy the property they want as opposed to the one they had to settle on.”
But she added that borrowing more “puts more pressure on buyers if the market turns against them”, for example if the price of their property were to fall or mortgage rates were to rise.
“It says to me, ‘borrow more to pay back more for longer’,” she added.