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26 Dec 2021

New mortgage deal allows you to borrow seven times your annual income

Habito boosts borrowing power, but watch out for job restrictions and high rates

Homebuyers will soon be able to borrow up to seven times their annual income when taking out a mortgage.

A new initiative by the online mortgage broker Habito offers the chance to boost your borrowing power and get a bigger mortgage, but you'll need to navigate strict eligibility rules and high interest rates.

Here, Which? explains how the new deal works and offers advice on finding the best mortgage for you.

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Habito allows you to borrow more when taking out a mortgage

Habito will allow homebuyers to borrow up to seven times their income when applying for a mortgage.

The offer is available on its Habito One mortgage, which comes with a fixed interest rate for its full term rather than for two or five years like most traditional mortgages.

Habito says that by loosening its lending criteria, it can help borrowers purchase their 'forever homes' more quickly at a time when house prices are soaring.

What is unique about Habito's deal?

Most mortgage lenders will allow you to borrow up to four and a half times your household income when applying for a loan, though a handful offer up to five and a half times if you meet certain criteria.

Habito's deal, however, lets you borrow up to seven times your income. So theoretically, if you earn £30,000 a year, you could borrow up to £210,000, rather than £135,000 with most lenders.

Who can apply for the deal?

As you might expect, this deal isn't available to just anyone. To qualify, you'll need to earn at least £25,000 a year and have worked in one of Habito's approved professional fields for at least a year.

The approved professions are:

  • Police
  • Firefighter
  • Nurse
  • Paramedic
  • Doctor
  • Accountant
  • Barrister
  • Teacher
  • Engineer
  • Lawyer
  • Dentist
  • Architect
  • Surveyor
  • Veterinarian

If you don't work in one of these fields, you'll need to earn at least £75,000 a year to qualify for the higher level of borrowing.

If you're applying with a partner, only one of you can borrow seven times your salary. The other will be able to borrow up to five times their salary.

Do I qualify if I only have a small deposit?

Habito's deal is available at up to 90% loan-to-value (LTV).

The maximum loan amount is capped at £1.25-£1.5m, depending on the LTV you're borrowing at.

Why is Habito allowed to offer higher borrowing limits?

The Bank of England sets limits on how many mortgages lenders can grant at more than four and a half times the applicant's annual salary, but Habito's new deal falls outside of these rules.

That's because its 'One' mortgage has a set interest rate for the entire term of the loan (for example 25 or 30 years).

This means the loan is protected from the possibility of future interest rate rises - for example, if the Bank of England base rate rises or you're moved on to your lender's standard variable rate, and therefore it doesn't need to be stress-tested the same way as other deals.

How do Habito's interest rates compare?

It's difficult to compare Habito's deal to others in the market, purely because the rate is fixed for the whole term rather than the two or five years commonly available elsewhere.

Habito's deals offer market-leading levels of security against future rate rises, but they come at a much higher price than standard fixed-rate mortgages, and have an above-average upfront fee of £1,995.

Habito's 60% mortgage (fixed for 25 years) with no early repayment charges comes with a rate of 3.49%.

By comparison, you can currently get a two-year fixed-rate mortgage at the same LTV for around 1.1-1.2%.

At 90% LTV, you'll need to pay 4.64% with Habito's deal, compared to 1.6-1.7% on a two-year fix.

Find out more:best mortgage rates for December 2021

Who might a Habito mortgage be suitable for?

Habito argues that protection against rising interest rates (particularly at a time of high inflation) coupled with a greater ability to plan for the long term makes its deals attractive.

The broker is targeting people buying 'forever homes' - properties that they'll settle in for the long term rather than moving on after a few years.

Habito believes that by offering higher borrowing caps, it can help people buy these properties sooner, rather than step up the ladder slowly.

Daniel Hegarty, founder of Habito, says: 'We believe this will be particularly attractive to those who want to buy a home with lots of future potential, or for people who are expecting pay-rises over their careers, as Habito One enables them to choose to make unlimited overpayments to become mortgage-free sooner.'

Analysis: is it worth considering Habito One?

Habito's deal can allow you to boost your borrowing power, but it does come with some important caveats.

On the plus side, the extra borrowing power could make a huge difference, and if you decide a fixed-for-life mortgage isn't for you, you'll be able to get out without paying early repayment charges.

On the other hand, the price you'll pay for long-term rate security is very high, and unless you work in one of the approved professions or have a large salary, you won't be eligible for the enhanced borrowing offer.

Whether the opportunity to borrow more and the comfort of a longer-term fixed rate is worth the cost will depend on your own circumstances and future plans. If you're unsure about your options, it's worth taking advice from a whole-of-market mortgage broker.