NatWest has ramped up its mortgage lending limits, allowing some borrowers to take out loans worth up to 5.5 times their income – but experts warn that taking on too much debt could leave homeowners vulnerable in the long run.
The banking giant has increased its loan-to-income (LTI) criteria for residential capital and interest mortgages, meaning that single or joint applicants earning over £40,000 could now borrow up to five times their annual income if they have a loan-to-value (LTV) ratio between 75% and 90%.
Meanwhile, those earning more than £75,000 as a sole applicant – or £100,000 jointly – could be eligible for an even higher LTI of up to 5.5 times their earnings, provided they meet affordability and credit score requirements.
While NatWest’s move could help more buyers get onto the property ladder, financial experts caution that taking on such a large mortgage could be a risky move, especially as interest rates remain volatile. Borrowing at such high multiples means even a small rise in rates could significantly increase monthly repayments, potentially pushing some homeowners to the brink of financial difficulty.
Lloyd Cochrane, head of mortgages at NatWest, defended the decision, saying: “Today’s move means we can support more of our customers to buy a home. It is the first of many improvements we are making this year.”
He added: “Whether our customers are looking to buy their first home or move along the property ladder, we are committed to making access to borrowing as inclusive as possible and this move is the latest step in that direction.”
NatWest is the latest lender to loosen its LTI restrictions, following similar moves by Marsden Building Society, Loughborough Building Society, and TSB. However, there is growing pressure on lenders to reassess these criteria amid concerns over rising household debt.
Bank of England governor Andrew Bailey recently warned that a “public debate” is needed over the potential risks of loosening stress tests. While higher LTI allowances may help more buyers secure a home, they also raise the likelihood of repossessions if homeowners find themselves unable to keep up with repayments.
Earlier this week, Nationwide called on the government to review the industry’s loan-to-income cap, arguing that it is making it harder for first-time buyers to access the housing market. However, critics argue that encouraging people to take on more debt without proper safeguards could create a ticking time bomb in the mortgage sector.
Prospective homebuyers should be cautious before taking on a high LTI mortgage. Financial experts recommend ensuring you have a financial buffer in case interest rates rise or personal circumstances change.
Overextending on a mortgage could lead to serious financial strain down the line, so careful budgeting and long-term planning are essential.
With property prices still high and economic uncertainty looming, the decision to take on a large mortgage should not be made lightly. Borrowers are advised to seek independent financial advice to ensure they can comfortably afford repayments – even in less favorable economic conditions.
