This Week's Insights 02/09/2019

Is Mortgage Term a Silver Bullet For Tight Affordability Cases?

Simple logic suggests there is a direct relationship between term and maximum borrowing, so brokers looking to maximise borrowing often choose the longest term available, say 35 or even 40 years. Is this the right strategy?

For our research we used a common case type:

  • Two applicants with one child.

  • One good salary and one part-time salary.

  • Small credit card balance and moderate car finance.

What happens if we flex the term?

  • For a start, the max loan is higher for a 35 rather than a 40-year term! This is because the lenders who offer 40 years are not those who have high multiples.

  • Reducing the term from 35 to 20 years only reduces the max loan by 5%. A reduction from 35 to 25 years only 1.8%!

  • Different lenders are at the top depending on the term, but in this case, it is always the same one at the bottom! No naming and shaming this time!

  • The range of maximum loan amounts increases as the term reduces from 35 down to 15 years, from 20% to over 53%. The ranking of the lenders also varies more than you would think!

The simple lesson is that nothing is simple in affordability. Be careful not to make assumptions when trying to maximise affordability using the mortgage term!

MBT Affordability Statistic of the Week…

Based on all 'Loan term 25 or over' cases run through MBT Affordability in the last month, the maximum affordability league table top five was:
1. Virgin Money
2. Nationwide
4. Santander
5. Halifax

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Thank you

Mr Affordability

Lewis Lenssen