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Thursday, November 02, 2006

The Big Mortgage

It seems that in order to prevent Britain's already dangerously inflated housing bubble from bursting, mortgage lenders are creating ever more dangerous products with which to ensnare the unwary and desperate house hunters.

Abbey have created a mortgage product which people may well regret buying into. Abbey has become the first major bank to lend first-time buyers five times their salary, for their first house purchase.

Lloyds TSB's Scottish Widows Bank have also confirmed that it offers mortgages of up to five times salary, in its professional and graduate packages. However, this is only for individual borrowers, the maximum a couple can get is four times earnings.

Last week, Bank of Ireland Mortgagees and Bristol and West increased their standard lending multiples from four to 4.5 times earnings.

Abbey, will now lend £300,000 to a single customer or two people with a good credit record and a total income of at least £60,000.

Abbey is making the offer available to individuals, couples, or two people not in a relationship who have a 25% deposit.

The maximum Abbey will lend a borrower for a standard mortgage is £2M.

Not surprisingly some people are warning against this product. Malcolm Hurlston, chief executive of the Consumer Credit Counselling Service said:

"For some people this is going to look like an answer to their prayers but it risks taking them into dangerous territory.

If their salaries do not go up in the way they think, then they are going to be very stretched
."

An Abbey spokesman said:

"It's a real shift within the industry.

Our research shows that affordability is the biggest barrier to people's ability to get onto the property ladder.

This is very much about looking at an individual's ability to pay
."

Abbey's research showed that 17.3 million adults are not able to get on the property ladder with 7.4 million citing house prices as a key obstacle.

Recent house price surveys have put the inflation at between 8%-10%.

That is all very well. However, at some stage the ongoing price rises will stop and those who bought in on the expectation of being to sell at a profit, thus clearing the debt, will be in for a rude awakening.

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