When we launched Habito One, in March 2021, it was the UK’s first full-term fixed-rate mortgage in more than a decade.
Since then, it’s great to see that we’ve been joined by other lenders - including Kensington and Molo - in offering residential fixed-for-life mortgage products, also with terms ranging from 10-40 years. More lenders entering the long-term fixed category can only boost the public’s awareness and education that such a product exists today.
In December 2021, we announced that eligible Habito One applicants could enhance their borrowing, up to seven times their salary, allowing them to enjoy more borrowing power than ever before. This enhanced affordability became available to professional applicants including firefighters, police officers, NHS clinicians including nurses and paramedics, and teachers and to applicants with a basic salary of £75k or more.
Twelve months into our fixed-for-life mortgage journey, what’s our data telling us about how our customers are using Habito One?
Key trends of our Habito One customers
- An average Habito One mortgage size is £214,000
- Weighted average loan-to-value rate is 70% - meaning our average Habito One homeowner has a 30% deposit
- Habito One customers are split evenly between those looking to purchase (51%) and those looking to remortgage (49%)
- 32% of Habito One mortgages are for detached house properties, and 29% are for semi-detached
When it comes to choosing a length of fixed term,
- 25% of One customers chose a fixed term of 10-15 years,
- 22% of One customers chose a fixed term of 21-25 years,
- 21% of One customers chose a fixed term of 26-30 years
We have Habito One customers all over England and Wales, but the majority live in:
- North West (19%)
- South East (16%)
- East Midlands (16%)
What does this tell us?
It shows the broad appeal of long-term fixed-rate mortgage products. From both new buyers and those looking to switch their deals, to homeowners that are living and buying in different regions, all over the country - lots of homeowners, in all sorts of buying positions, want the certainty of locked-in rates and stable monthly repayments with the built-in flexibility for decades to come.
What’s the future of long-term fixes?
Looking at the economic outlook, the Consumer Prices Index measure of inflation hit 6.2% in February - a 40 year high - and this month, the Bank of England announced its third rate increase in three Monetary Policy Committee meetings. With the potential for further rate rises into the Autumn, and the cost of living crisis hitting people’s pockets, more homeowners may consider fixing for longer as a way to shield their monthly repayments from any future rate volatility.
New data from the Office for National Statistics (ONS) this week, showed that the average price of a home in 2021 had rocketed to 9.1x average earnings in England. This is a rise from the 7.9 times in 2020 that ONS called “statistically significant”. This figure falls far short of the typical mortgage lending range of 4.5-5.0x income.
With Habito One, we’re able to offer eligible applicants some of the best levels of lending in the whole market, should they need it. This means they could be able to afford a better home than they otherwise would think. Previously, our research found that half (53%) homeowners said they had been limited by what they could borrow for a mortgage, even though they could afford it. Meanwhile, two-thirds (66%) of the homeowners we asked welcomed the idea of more borrowing power, provided of course that appropriate affordability checks had been put in place.
We continue to be really excited to help people potentially get on the housing ladder a little faster, or in a way that wasn’t available to them before. This means people can move into the home that’s right for them, at a time in their life that suits them best. Having launched enhanced affordability for Habito One just three months ago, it is still early days. However, we think it’s going to be particularly attractive firstly, to those who want to buy a home to live in for a long time, that has lots of future potential. And secondly, for those expecting payrises, over their careers, as Habito One has the option of unlimited overpayments.
Read more about Habito One here.
About Habito’s affordability testing
Habito offers 7x borrowing on its Habito One product, for eligible applicants, in part because its interest rates are guaranteed for the lifetime of the loan. Homeowners on a Habito One mortgage are protected from rising interest rates.
On a typical short two or five-year mortgage, homeowners are assessed on their future ability to repay those deals, as they offer relatively little time protection from fluctuating rates. The Bank of England recommends that for mortgages where the interest rate is not fixed for five years or more, lenders test an applicant's ability to repay their mortgage at 3% over a lender’s reversion rate, or standard variable rate (SVR). A typical Loan-To-Income ratio that might be available given the stress test, would be in a range of 4.5-5.0x. This limits the amount the lender is able to offer in most instances. In 2022, the Bank of England announced an intention to consult on proposals to remove this 3% stress test recommendation.
The Bank of England also sets limits on how much mortgages lenders, that lend above £100m a year, can offer at more than four and a half times the applicant’s annual salary. Habito, currently, falls outside of those rules.
As well as minimum income backstops and specified professions, Habito combines further measures to ensure an applicant’s affordability and suitability for up to 7x borrowing, including loan-to-income requirements, including applicants having 10% excess cash remaining, a good credit score, and being fully employed for at least one year (as opposed to the industry standard of 3 months).