Borrowers taking advantage of new higher-income mortgage multiples risk carrying mortgage debt well into later life unless they start overpaying from the outset, according to mortgage overpayment app Sprive.
The warning follows NatWest’s decision to increase lending to as much as 6.5 times income for higher-earning borrowers. Under the criteria, couples earning £150,000 or more with a 25% deposit could potentially borrow up to £975,000.
Sprive said larger loans may help more buyers access the housing market, but they also increase the risk of borrowers repaying mortgages into their 60s and 70s.
The firm highlighted that the average first-time buyer is now aged 32, while one in nine first-time buyers is aged 45 or older. At the same time, almost one-third of first-time buyers are taking mortgage terms of 35 years or more.
SIGNIFICANT SAVINGS
Analysis by the company suggests relatively modest overpayments can generate significant savings. On a £975,000 mortgage over 30 years at 5%, a borrower making an additional £250 monthly payment could save more than £103,000 in interest and clear their mortgage almost three years earlier.
Increasing overpayments to £500 a month could reduce interest costs by more than £184,000 and cut the mortgage term by over five years.
The benefits also extend to more typical first-time buyer borrowing levels. Sprive calculated that a borrower taking a mortgage worth six times the average UK salary, around £234,000, could save more than £74,000 in interest and become mortgage-free nine years earlier by overpaying £250 a month on a 30-year term.
INTEREST TRAP
Jinesh Vohra (main picture), Chief Executive Officer of Sprive, says: “With lenders now offering mortgages at six times income and six and a half to some borrowers, the risk is that people will be taking on the biggest debt of their lives and still be repaying it as they enter retirement.
“Overpaying is the single best way to become mortgage-free sooner and avoid the trap of paying hundreds of thousands in interest.
“With interest rates still being relatively high, the earlier you start overpaying, the bigger the impact.”
FINANCIAL FREEDOM
He adds: “The system wasn’t designed for people to be paying off mortgages into their 70s. With mortgages now stretching to six times income, turning your everyday shopping into overpayments with Sprive isn’t just smart, it’s essential if you want financial freedom before retirement.
“Our mission at Sprive is to make that process painless, whether it’s using cashback from your weekly food shop or automatically setting aside small, affordable amounts each week.”
