Property ladder innovation results in a 10x income mortgage

Big loans on real estate are back

There are interesting innovations in the mortgage and real estate world that can result in borrowers getting a loan of up to 10x income with just 5% deposit.

Both schemes have their relative merits. For many, this will be the only way to get on the property ladder and that should be applauded. “

—Richard Campo

LONDON, UNITED KINGDOM, Nov 25, 2021 / – These new mortgage programs work in two very different ways.

The first concerns long-term fixed rates. Kensington, a non-high street mortgage lender, has created a range of fixed-rate mortgages with terms of up to 40 years.

Because of the length of the fixed rate, they do not need to run background “stress tests” that normally stifle borrowing, as lenders will have to factor in a higher floating rate at the end of the initial product as well as an increase in interest rates during that time. Since this mortgage is fixed for the life of the loan, they do not have to take these factors into account, i.e. first time buyers and individuals with incomes above £ 100,000 can borrow up to six times their salary

The second mortgage innovation is incremental home ownership. A new type of lender called Wayhome offers a common ownership structure.

When a borrower first pays a 5% down payment, Wayhome buys the remaining 95% of the property and the borrower “rents” the rest. The borrower is free to buy portions of the property on a monthly or ad hoc basis until he owns 40%. From that point on, the borrower will have to switch to a traditional mortgage to buy the rest of the property. This system allows a person to borrow up to ten times their income as affordability is evidenced in the rent already paid. The borrower’s income must be between £ 30,000 and £ 140,000 to qualify and the maximum property value on purchase is £ 500,000 and must be in an approved area.

Wayhome is very interesting as this is a different type of home ownership that is similar to sharia-compliant financing. However, the Kensington mortgages are comparatively expensive, starting at 2.83% (with a deposit of 40% up to a term of 15 years) up to 4.30% (with a deposit of 5% up to a term of 40 years) ) So if a borrower needs that amount to complete a home purchase or a debt restructuring then that works fine. If a borrower needs a more modest sum but wants long-term security, most borrowers are probably still advised to choose a standard fixed rate of 5 years, as the rates start at as low as 1.28% (with a deposit of 40 %) are unlikely to be high enough to justify the higher margin Kensington’s Flexi Fixed range offers.

To put that in context, a £ 250,000 repayable mortgage over 25 years, the borrower will pay £ 70,124 * with the Kensington mortgage in the first 5 years versus £ 58,653 * with the current market leading 5 Annual fixed loan. A huge surcharge of £ 11,471 for “peace of mind” against rate hikes that are not expected to be that high. (* Information from Twenty7Tec. These costs include interest, fees and the principal repaid.)

Richard Field
Rose Capital Partners
+44 20 7935 7866
[email protected]
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November 25, 2021 at 2:49 pm GMT

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