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June 22, 2023

Finding the balance: LTIs and affordability in the residential mortgage market

Luke Stevenson Written by Luke Stevenson
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To experience simple, fast and reliable mortgages for your customers who may not get a mortgage elsewhere, start on our residential mortgage page. 

By Jason James, Corporate Account Manager at LendInvest

Since the pandemic, times have changed for the ordinary homebuyer. Today’s residential mortgage products have been designed with the new, challenging environment in mind.

Providing a different solution for those looking to purchase their first home, move into a new place or remortgage in 2023. 

Homeowners looking to remortgage in particular will find a very different situation. 

Let’s set the scene – A cohort who entered the market during 2020 and 2021 enjoyed record low interest rates, during the base rate low of 0.1%. As we progress into 2023, these same homebuyers who entered on a 2-year or perhaps a 5 year fixed rate deal will be looking to remortgage, in a far different environment; often struggling to meet affordability criteria due to the increased rates today’s market provides.

As we enter a stabilising market, lenders have focussed their attention on building a balance between LTI calculations and affordability checks to provide more opportunities for the public. Why is it important to find this balance?

LTI Calculations

For years, LTI calculations have always been considered one area of the market that cemented its roots. Now, as Specialist Mortgage Lenders enter the market, they are pioneering the way we now look at loan-to-income ratios.

One of these innovations has been a staggered approach to LTI calculations. This simply allows the aspiring homeowner to receive a higher loan-to-income ratio depending on their profession. Here’s an example. At LendInvest, we provide LTI calculations of up to 4.49x annual salary. Qualified working professionals however, can receive up to 6.49x, subject to individual circumstance. 

Why is this needed? Well – from a lender’s perspective, different job types provide greater risk than others. Whether that’s the risk of redundancy, the risk of injury, or other, it all plays a vital role in the potential return of a customer. Segmenting customers based on their profession provides greater opportunity for lending, and as a result, opens up opportunities for those looking to buy a home in 2023, or remortgage in a less friendly  market environment.

Affordability Checks

Naturally, due to increasing interest rates, inflation and the cost of living crisis – affordability checks can cause significant issues when applying for a home mortgage.

Once again this problem will be more acute for people remortgaging following years of record interest rates, especially as wage growth isn’t keeping up with inflation – will they fit into the new, tighter criteria being set by lenders which made them mortgageable in 2021, but not anymore?

That’s why finding a balance between loan-to-income calculations and affordability checks is vital. A stretched LTI might feel like the right step for a buyer purchasing their new home, for example, but what impact will that have on monthly payments?

Sustainability should be on every lender’s mind, and producing comprehensive products is how we ensure that for us and our customers. 

Making mortgages simple

So, what steps do lenders need to take to ensure this demand can be met?

  • Mortgage products that meet the needs of the market
  • A lender open to be flexible to their lived situation and find a solution
  • A straightforward process that removes the stress.

This is – conveniently, you might say – what we designed our residential mortgage products to do. 

With broad criteria for self-employed, key workers and qualified professionals, stretched LTIs, flexibility around adverse and a technology-led process that simplifies the process for you and your customer, we are meeting their challenges head on. 

What’s important to remember is that in this current environment, lenders are going to struggle to find the right balance, and lenders need to be proactive and ambitious in their product planning to ensure current and future homeowners can secure their properties. 

To experience simple, fast and reliable mortgages for your customers who may not get a mortgage elsewhere, start on our residential mortgage page. 

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