I picked up an interesting snippet of gossip from our team of lovemoney.com mortgage brokers today. Apparently Nationwide is going to change the criteria it uses when it decides how much it can lend to a homebuyer.
Traditionally, lenders have concentrated on how much the borrower earns and offered a multiple of those earnings. Twenty years ago, you'd have struggled to borrow more than three times your salary, but in the lending boom of the noughties, some people were borrowing a multiple of five times salary or more.
But from April, Nationwide is going to switch away from salary multiples. Instead it will look at affordability - how much can a borrower afford to repay? That makes sense. Two people on £40,000 aren't identical. Someone with two children is likely to have less spare cash for mortgage repayments than a single man with no dependants.
Nationwide will also look at a borrower's credit record. That makes sense too.
Both of these moves aren't that surprising. The FSA said last October that it thought lenders should start to focus on affordability rather than credit ratings. The interesting point is that it means that some borrowers will be able to borrow more and effectively benefit from a higher salary multiple.
Now some people might say that was a bad thing as higher salary multiples could return us to the days of reckless lending. But don't see things that way. I think the focus on affordability should mean that we'll see fewer foreclosures. And if some homebuyers are able to borrow more, that may deliver a very modest fillip to the housing market later this year.
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This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term will revert to the lender's standard variable rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.