Most single homebuyers cannot afford new properties
Despite recent changes to the loan to income (LTI) ratio, most single homebuyers in the UK cannot afford to get onto the property ladder unless buying with a partner.
LTI: past and current
LTI means a multiplier of salary that is applied when borrowing money. Henry Dannell analysed past and current LTI ratios and revealed a 6.5% increase over the last 10 years, from 3.87 to 4.12.
A typical ratio for single buyers stood between 4 and 4.5, while joint applicants had a similar figure between 3.5 and 4. However, 2021 saw several lenders relaxing the LTI ratio and offering up to 7 LTI for certain applicants.
Some met the changes with scepticism and found it concerning. But the data by Henry Dannell reveals that some homebuyers still cannot get onto the property ladder despite more favourable LTV. Mainly, this reflects the high costs of buying a new property.
LTI and average property prices
Currently, an average UK house costs £270,700, which requires a 10% deposit of £27,070. It means a typical buyer will need some £243,600 to be borrowed.
In turn, the average UK salary stands at £31,400, so even a favourable LTI ratio of 4.5 is not enough – a buyer still requires an extra £102,000.
Moreover, even a fixed 15-year mortgage with an LTI of 7 leaves a buyer £23,500 short of buying an average UK property.
Joint applicants have a little less challenging market settings than single homebuyers now. Currently, typical joint applicants with a 10% deposit require an LTI of 3.92 to borrow sufficient funds for a new home in the UK.
Geoff Garrett of Henry Dannell highlights the recent changes to LTI and favourable conditions for new homebuyers despite the increased interest rates. But the rising property prices made the market settings very challenging for new homebuyers, especially for those who are buying alone.
The property market is very diverse, and affordability criteria vary greatly. Employment type, base income, extra earnings, and credit rank – all this influences the LTI ratio. Calculating the possible borrowing allows a homebuyer to understand their affordability range.
The expert points out the importance of saving for a bigger deposit and looking for more favourable mortgage deals because of the expected rising property prices.
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