Home buyers stand to benefit from a more tailored approach
The Alliance & Leicester Mortgages study, undertaken by the Centre for Economics and Business Research, analyses the use of income multiples and examines how homeowners are likely to be affected by the use of affordability based lending criteria as more lenders move towards this. Affordability signals a more sophisticated and responsible lending approach based on an individual’s disposable income and personal circumstances, whereas income multiples look purely at gross salary.
The findings show that levels of disposable incomes have risen so, on average, people have more income which could be available for mortgage repayments.
Affordability looks at an individual borrower’s circumstances. The report looked at a number of different household types – both single and dual income households and those with and without children – and using the average income and expenditure for each household type, compared the maximum mortgage lending under income multiples and typical affordability calculations.
Stephen Leonard, Director of Mortgages at Alliance & Leicester, said: "Affordability provides a more responsible approach to lending as it considers an applicant’s individual circumstances – those who are debt free will benefit the most.
"Lenders have responded to changing circumstances. The move towards affordability based lending means that more people will get a helping hand onto the property ladder – and homeowners will continue to be able to ‘move up’ as their incomes rise."
