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Mortgages at 7 times salary for 40 years

mortgage deals, ideas and discussion
ursaminortaur
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Mortgages at 7 times salary for 40 years

#468668

Postby ursaminortaur » December 27th, 2021, 2:21 pm

Habito is offering mortgages at 7 times salary fixed for upto 40 years

https://www.theguardian.com/business/2021/dec/27/fears-of-higher-uk-home-prices-as-habito-launches-7x-mortgage

A mortgage lender is letting homebuyers borrow up to seven times their income – well above the traditional maximum – which it says will allow some to buy a property they might have assumed was well out of their price range.

Habito’s new formula for calculating how much people can borrow is considerably higher than the industry’s typical maximum of between four and five times salary, and while it could allow some buyers to scale up their property-buying ambitions, it could also revive debate about responsible lending practices.

However, these more generous terms are only available to people who take out one of the company’s “fixed-for-life” mortgages launched this year, which let borrowers lock their monthly repayments at the same level for up to 40 years.
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Traditionally the typical maximum “income multiple” available in the UK is about 4.5 times salary, though in 2020 a number of big lenders including Halifax and HSBC have lifted their caps to 5.5 times for certain borrowers.

Habito’s new terms apply to its Habito One mortgage. To qualify to borrow seven times their income, applicants have to work in one of a number of professions, including firefighters, police officers, NHS clinicians, such as nurses and paramedics, as well as teachers in the public sector – and earn a minimum basic salary of £25,000 a year.

Higher-income earners on a minimum £75,000 basic salary are also eligible. Borrowers will need a deposit of at least 10%.

In a joint application only one person will be accepted for up to seven times salary, while the other will have their salary multiplied by five. Interest rates on the mortgages start at 2.99%

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Re: Mortgages at 7 times salary for 40 years

#468688

Postby BullDog » December 27th, 2021, 4:47 pm

I wouldn't be able to sleep at night with such ridiculous amounts of debt. And couple can take out 7x plus 5x salary for 40 years? Insane. What about money to live off?

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Re: Mortgages at 7 times salary for 40 years

#468690

Postby pje16 » December 27th, 2021, 4:58 pm

Salary multiples are just a number
Work out what you can afford to repay
factor in a cushion of at least 6 months in case you have the misfortune to lose your job
If you CAN afford to repay it and decide on that basis NOT a number multiple

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Re: Mortgages at 7 times salary for 40 years

#468694

Postby dealtn » December 27th, 2021, 5:06 pm

BullDog wrote:I wouldn't be able to sleep at night with such ridiculous amounts of debt. And couple can take out 7x plus 5x salary for 40 years? Insane. What about money to live off?


Interest at 2.99% on 6 x times salary is less than 20% of the joint salary. Sensible professional couples should be able to find part of that remaining 80%+ "to live off" I would think.

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Re: Mortgages at 7 times salary for 40 years

#468696

Postby Mike88 » December 27th, 2021, 5:14 pm

dealtn wrote:
BullDog wrote:I wouldn't be able to sleep at night with such ridiculous amounts of debt. And couple can take out 7x plus 5x salary for 40 years? Insane. What about money to live off?


Interest at 2.99% on 6 x times salary is less than 20% of the joint salary. Sensible professional couples should be able to find part of that remaining 80%+ "to live off" I would think.


Some Mortgage companies also take into account expected lump sum payments on retirement.

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Re: Mortgages at 7 times salary for 40 years

#468699

Postby mc2fool » December 27th, 2021, 5:24 pm

BullDog wrote:I wouldn't be able to sleep at night with such ridiculous amounts of debt. And couple can take out 7x plus 5x salary for 40 years? Insane. What about money to live off?

Well, the most expensive option is with a 90% LTV (10% deposit) for a term of 36–40 years, which is at 5.60%‍. https://www.habito.com/one

Taking a, say, nurse earning £25,000 gross pa, 7x would be £175,000 and MSE tells me that at 5.6% that would cost £915pm. *

MSE also tells me that someone earning £25,000 gross pa with a 5% pension contribution would be taking home £1,639pa. **

So, £724pm to live off of. That's doable if it's just you, and you have a modest life style. More problematic if you have kids ....

* https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/
** https://www.moneysavingexpert.com/tax-calculator/

dealtn wrote:Interest at 2.99% on 6 x times salary is less than 20% of the joint salary. Sensible professional couples should be able to find part of that remaining 80%+ "to live off" I would think.

You only get 2.99% with a 40% deposit (60% LTV) and for a term of 10-15 years. https://www.habito.com/one

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Re: Mortgages at 7 times salary for 40 years

#468700

Postby BullDog » December 27th, 2021, 5:29 pm

mc2fool wrote:
BullDog wrote:I wouldn't be able to sleep at night with such ridiculous amounts of debt. And couple can take out 7x plus 5x salary for 40 years? Insane. What about money to live off?

Well, the most expensive option is with a 90% LTV (10% deposit) for a term of 36–40 years, which is at 5.60%‍. https://www.habito.com/one

Taking a, say, nurse earning £25,000 gross pa, 7x would be £175,000 and MSE tells me that at 5.6% that would cost £915pm. *

MSE also tells me that someone earning £25,000 gross pa with a 5% pension contribution would be taking home £1,639pa. **

So, £724pm to live off of. That's doable if it's just you, and you have a modest life style. More problematic if you have kids ....

* https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/
** https://www.moneysavingexpert.com/tax-calculator/

dealtn wrote:Interest at 2.99% on 6 x times salary is less than 20% of the joint salary. Sensible professional couples should be able to find part of that remaining 80%+ "to live off" I would think.

You only get 2.99% with a 40% deposit (60% LTV) and for a term of 10-15 years. https://www.habito.com/one

Exactly my point. It isn't living, it's existing. What about money for pensions, savings, cars, holidays, home improvements and much more besides? I find it of great concern Ovo Energy are saying there's a 100% increase in energy bills coming in April.

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Re: Mortgages at 7 times salary for 40 years

#468701

Postby dealtn » December 27th, 2021, 5:34 pm

It looks like fixed rates incorporate the early repayment charge on any capital payments, which are often capped at just 10% a year on most fixed rate mortgages. So no charges on lump sum or full repayments.

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Re: Mortgages at 7 times salary for 40 years

#468703

Postby dealtn » December 27th, 2021, 5:39 pm

BullDog wrote:
mc2fool wrote:
BullDog wrote:I wouldn't be able to sleep at night with such ridiculous amounts of debt. And couple can take out 7x plus 5x salary for 40 years? Insane. What about money to live off?

Well, the most expensive option is with a 90% LTV (10% deposit) for a term of 36–40 years, which is at 5.60%‍. https://www.habito.com/one

Taking a, say, nurse earning £25,000 gross pa, 7x would be £175,000 and MSE tells me that at 5.6% that would cost £915pm. *

MSE also tells me that someone earning £25,000 gross pa with a 5% pension contribution would be taking home £1,639pa. **

So, £724pm to live off of. That's doable if it's just you, and you have a modest life style. More problematic if you have kids ....

* https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/
** https://www.moneysavingexpert.com/tax-calculator/

dealtn wrote:Interest at 2.99% on 6 x times salary is less than 20% of the joint salary. Sensible professional couples should be able to find part of that remaining 80%+ "to live off" I would think.

You only get 2.99% with a 40% deposit (60% LTV) and for a term of 10-15 years. https://www.habito.com/one

Exactly my point. It isn't living, it's existing. What about money for pensions, savings, cars, holidays, home improvements and much more besides? I find it of great concern Ovo Energy are saying there's a 100% increase in energy bills coming in April.


It's not exactly my point then! If you think 20% of a professional couple's income only leaves enough for "existing" you don't appear to live in the same place as me. If that is "existing" what are the numerous people earning much less, and also paying either rent or mortgage doing?

It's not going to be a product for everyone (and isn't available for everyone), nor will it be in the lender's interest to offer one to everyone. But to make claims there isn't a place in the mortgage marketplace for sensible people to enter a contract with a sensible lender, and that they aren't able to live, is nonsensical in my opinion.

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Re: Mortgages at 7 times salary for 40 years

#468707

Postby RockRabbit » December 27th, 2021, 6:04 pm

BullDog wrote:I wouldn't be able to sleep at night with such ridiculous amounts of debt. And couple can take out 7x plus 5x salary for 40 years? Insane. What about money to live off?

Well, we've sort of been here before. Remember the "innovative" Northern Rock 125% mortgages? That turned out well!

http://news.bbc.co.uk/1/hi/business/7256903.stm

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Re: Mortgages at 7 times salary for 40 years

#468712

Postby mc2fool » December 27th, 2021, 6:53 pm

BullDog wrote:
mc2fool wrote:Taking a, say, nurse earning £25,000 gross pa, 7x would be £175,000 and MSE tells me that at 5.6% that would cost £915pm. *

MSE also tells me that someone earning £25,000 gross pa with a 5% pension contribution would be taking home £1,639pa. **

So, £724pm to live off of. That's doable if it's just you, and you have a modest life style. More problematic if you have kids ....

Exactly my point. It isn't living, it's existing. What about money for pensions, savings, cars, holidays, home improvements and much more besides? I find it of great concern Ovo Energy are saying there's a 100% increase in energy bills coming in April.

As I said above, that's with a 5% pension contribution, but in any case, your point is subjective and obviously comes from your own perspective but is not universal. Maybe £724pm net after housing cost would be "existing" for you but it isn't so for everybody; indeed, I've been spending less than that during the pandemic, due to not going out as much, and far from feeling I'm only existing; I've just adapted my living to suit, happily so.

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Re: Mortgages at 7 times salary for 40 years

#469028

Postby BT63 » December 29th, 2021, 3:51 pm

Mike88 wrote:Some Mortgage companies also take into account expected lump sum payments on retirement.


Many of our neighbours' children are now 20-something and are getting onto the property ladder as a result of inheriting the wealth of their recently-deceased grandparents.

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Re: Mortgages at 7 times salary for 40 years

#469041

Postby monabri » December 29th, 2021, 5:14 pm

Taking out a mortgage in mid 20s for 40 years...some might not live long enough to see their final payments!

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Re: Mortgages at 7 times salary for 40 years

#469084

Postby Mike4 » December 30th, 2021, 12:24 am

monabri wrote:Taking out a mortgage in mid 20s for 40 years...some might not live long enough to see their final payments!


How curious, this idea of taking a mortgage and keep paying it down until it's term expires.

I've had dozens of mortgages in my life so far and always paid them off early for one reason or another. Usually by remortgaging at a better rate or moving house and taking out a bigger one!

Until the last house which was a huge to suit the six of us, that we knew we would not need after the kids all left home. So we took an interest only mortgage, made no attempt to pay it down and sold the place 20 years later for three times what we paid for it, paid off the mortgage and bought another, more modest house for cash with the surplus.

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Re: Mortgages at 7 times salary for 40 years

#469086

Postby Lootman » December 30th, 2021, 1:08 am

ursaminortaur wrote:Habito is offering mortgages at 7 times salary fixed for up to 40 years

My eldest son secured a mortgage at 7 times income back in 2005 so this is nothing new.

However that excluded consideration of his tip income, which is considerable. And he was putting down over 50% in cash, courtesy of the bank of mum and dad.

But it was not a 40 year term and in fact he had to refi after 2 years, whereupon he found he could no longer borrow 7X income. So the 40 year thing would have helped in that situation.

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Re: Mortgages at 7 times salary for 40 years

#469110

Postby 1nvest » December 30th, 2021, 8:48 am

dealtn wrote:It's not exactly my point then! If you think 20% of a professional couple's income only leaves enough for "existing" you don't appear to live in the same place as me. If that is "existing" what are the numerous people earning much less, and also paying either rent or mortgage doing?

Housing benefits? Of the order 25% of what is spent on the NHS each year is paid out in HB.

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Re: Mortgages at 7 times salary for 40 years

#469126

Postby gryffron » December 30th, 2021, 10:00 am

So presumably, in a dozen years time, when base rates are 10%+ and house prices crash, habito will be unable to fund its debts, will go bust and all these people will lose their "fixed" rate mortgages. Just at a time when variable rates are highest and house prices lowest, so they all lose their homes and go bankrupt.

Exactly what has just happened to energy companies offering "fixed rate" energy tariffs. Except that didn't see anyone thrown out on the streets.

Reads like a scandal in the making to me. You read it here first.

Which doesn't mean it isn't an opportunity if used sensibly. Overpay the mortgage, or save the surplus, so you're ready when they go broke, and it could still help you get on the ladder now. Just so long as you're ready for the inevitable crash. And if I'm wrong, you retire early. What's the problem?

Gryff

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Re: Mortgages at 7 times salary for 40 years

#469155

Postby dealtn » December 30th, 2021, 12:00 pm

gryffron wrote:So presumably, in a dozen years time, when base rates are 10%+ and house prices crash, habito will be unable to fund its debts, will go bust and all these people will lose their "fixed" rate mortgages. Just at a time when variable rates are highest and house prices lowest, so they all lose their homes and go bankrupt.

Exactly what has just happened to energy companies offering "fixed rate" energy tariffs. Except that didn't see anyone thrown out on the streets.

Reads like a scandal in the making to me. You read it here first.

Which doesn't mean it isn't an opportunity if used sensibly. Overpay the mortgage, or save the surplus, so you're ready when they go broke, and it could still help you get on the ladder now. Just so long as you're ready for the inevitable crash. And if I'm wrong, you retire early. What's the problem?

Gryff


I would expect the bank, unlike it seems the energy companies, to hedge their fixed rate exposure. Regulators (and investors) should be in a position to check that too (presumably the same with the energy companies).

Is your predicted scandal that somehow the regulator and investors wouldn't be aware of the hedging, or that the bank wouldn't hedge. Or that they will fraudulently claim to have hedged but in practice didn't? Or is there some other scandal you are predicting that we are fortunate to be reading about first?

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Re: Mortgages at 7 times salary for 40 years

#469163

Postby gryffron » December 30th, 2021, 12:31 pm

dealtn wrote:I would expect the bank, unlike it seems the energy companies, to hedge their fixed rate exposure.

How? How can they hedge their entire loan book? For 40 years! Surely they would then have to pay more for their loans than anyone else. They cannot completely hedge the risk and remain competitive - exactly the problem energy companies had.

Gryff

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Re: Mortgages at 7 times salary for 40 years

#469169

Postby dealtn » December 30th, 2021, 12:46 pm

gryffron wrote:
dealtn wrote:I would expect the bank, unlike it seems the energy companies, to hedge their fixed rate exposure.

How? How can they hedge their entire loan book? For 40 years! Surely they would then have to pay more for their loans than anyone else. They cannot completely hedge the risk and remain competitive - exactly the problem energy companies had.

Gryff


That was my job for over 10 years (at least the execution of the internal/external hedges). A bank will hedge its loan portfolio, and can demonstrate such to the regulator and investor base, which can cover fixed rates up to 40 years.

Very few mortgage lenders are offering 40 year products (including the "free" option to terminate) in this country, but most mortgage lenders are offering commercial lending, and have portfolios extending for 40 years or longer on fixed rate terms. They actively, and dynamically, hedge.

I agree at the margin this lender is likely to have a less efficient hedging capacity than most of the mainstream mortgage lenders though, but it's product pricing already looks less competitive, hence its niche offering presumably.

What is the "exact" problem, and how does it relate to energy companies? My bank offered energy price hedging to its customers too, many of whom choose to have this (either with us or competitors).


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