While there are lots of different mortgage products on the market even if you are a high quality borrower, you might not meet banks’ ‘cookie cutter criteria’ for and therefore may not be able to find an option that meets all your requirements. Here, we explore some of the options for maximizing the amount you can borrow in the current economic environment, especially if you have a great financial background, but little day-to-day liquidity or if you have unusual income or working set-up.
Capitalised interest mortgages see the amount you owe in interest added to your principal mortgage amount. Instead of paying the interest ‘as you go’), you can effectively defer the interest payments for a pre-agreed period of time. During this time, the interest balance is added to the outstanding loan amount, which means you are borrowing a larger amount. When the predefined period comes to an end, you repay the capital and interest together, taking into consideration the higher loan amount on the basis of the interest being capitalised.
Capitalised interest mortgages aren’t available to everyone because they can carry more risk to lenders and you need to be able to show the loan is both affordable and you’ll have the means to pay it off easily when the deferral period comes to an end. However, they can be ideal if you are a high-net-worth individual that has a great financial profile and assets that show you are a quality borrower but you don’t have lots of day-to-day income. They can be ideal if you don’t currently have lots of liquidity but you’ll become more liquid in the future.
Prepaid interest mortgages will see you pay all or some of the interest you will owe upfront, leaving you to make payments on the principal loan amount (plus any outstanding interest) as usual with monthly repayments. This type of mortgage can provide comfort to lenders as they will see it as a way of minimising their risk which can allow you to borrow more if your wider financial situation supports this kind of loan.
Pre-paid interest mortgages can be helpful for successful entrepreneurs, self-employed individuals or anyone with an unusual salary structure or, again, little day-to-day liquidity.
The FCA has set a cap on the number of high loan-to-income mortgages a lender can offer, with rules stating that no more than 15% of any new mortgages written by a single lender can have a multiple of 4.5x (or more) loan-to-income (LTI). LTI typically sets the threshold of the maximum you can borrow using your income as a basis, so, for example:
- Salary: £150,000
- Multiple: 4.5x
- Maximum mortgage: £675,000
The 15% cap on high LTI mortgages was implemented in 2014 as a way to limit any one lender having a very large number of highly leveraged mortgage holders, which increases the risk of default and wider economic challenges if there was economic volatility which means that lots of borrowers can’t repay their loans.
While many lenders will offer mortgages that have an LTI ratio of 4.5x your income, this doesn’t mean that you can’t borrow more. If you have the right profile (usually you are earning a salary of £75,000 or more and have a professional role and a solid financial background) we can negotiate a higher LTI – sometimes up to 5 or 6 LTI, allowing you to borrow more. This can be helpful if you are a professional buying a first property, you’re looking to upsize to accommodate a growing family or if you’re buying in an area where property prices are high – in London for example. Lenders don’t offer high LTI mortgages as standard, which means you will almost always benefit from working with a broker who can present your case and explain why you are a good candidate for this type of mortgage.
High-net-worth individuals who meet certain criteria can effectively opt out of regulated oversight, which means that lenders can be more flexible when assessing affordability. Ultimately, this means that lenders can assess your suitability for a mortgage by reviewing your global assets and net worth rather than in a retail fashion which sees far more emphasis on income. Working with a broker will ensure you can access the lenders offering high-net-worth mortgages and the most competitive products for your specific situation.
The loan-to-value (LTV) ratio of your mortgage is the amount you are borrowing as a percentage of your property’s value, so, for example:
- Property price: £2 million
- Deposit: £500,000
- Mortgage amount: £1.5 million
- Loan-to-value: 75%
Most mortgages sit in the 70-75% LTV range, but it is possible to borrow more in some cases. High-net-worth individuals who can demonstrate good income, an excellent credit history, good liquidity and a solid financial background can sometimes access a higher LTV mortgage at 85+%. Just with high LTI mortgages, lenders don’t offer these products as standard, so a broker that can work with a lender to explain why you are an ideal candidate for a high LTV mortgage is usually critical to accessing this type of property finance – especially if you are making a high-value purchase (£1 million+).
It’s also worth noting that typically you can’t access both a high LTI and high LTV mortgage – if both are a possibility based on your background, you’ll usually need to choose one or the other as lenders will want to limit risk. The best way to understand what’s best for you is to work with an adviser like Enness who can explain the benefits and potential drawbacks of each type of mortgage and provide cost simulations so you can see in concrete terms which is most beneficial to you, depending on your goals for a property.
This guide is for information and illustrative purposes only and nothing contained within should be construed as advice or a recommendation.
Financing options available to you will depend on your requirements and circumstances at the time. Any changes in your circumstances, any known likely changes, or omissions in the information you provide can affect the suitability of the options available to you. These should be communicated to us as early as possible.
If you are considering securing debts against your main home, such as for debt consolidation purposes, please think carefully about this and consider all other options available to you.
Your home may be repossessed if you do not keep up repayments on your mortgage or other debts secured on it.