Lenders offering ‘irresponsible’ super-size mortgages

As Britain’s house prices continue to soar it has emerged that some lenders are offering mortgages for up to six times buyers’ salaries – a level branded ‘irresponsible’ and ‘alarming’ just before the housing crash of 2008.

Top financial journalist Louise Eccles said: “First-time buyers are saddling themselves with record levels of debt as banks launch super-sized mortgages for up to six times people’s salaries.”

Market

Analysing the market she said the average first time buyer is now taking on a loan of 3.68 times the size of their salary, but 25% of all mortgages are now for 4.5 times salary or higher, compared to just 20% three years ago.

Said Louise: “With house prices soaring by a third in just five years, to an average of £233,000, mortgages are helping to push up debts to levels never seen before.

Six times

“This week, Darlington Building Society launched a mortgage offering professionals up to six times their salary. It last offered loans for up to six times’ income in 2007, just before the housing crash.

“Barclays and Santander are also offering loans of up to 5.5 times income to high earners, while Clydesdale Bank offers the same rate for some newly-qualified professionals.”

Real problem

A spokesman for the StepChange debt charity said: “Super-sized mortgages reflect the real problem, which is the cost of housing and the difficulty of accessing it affordably as a result.

“The more borrowing you have relative to your income, the higher the risk you face if either the cost of your borrowing rises or your income falls.”

Tempted

Mortgage expert David Hollingworth said: “Given the high house prices and demanding deposit sums required as a consequence, it’s no surprise that first-time buyers may be tempted to push their mortgage borrowing to the limits.

“It’s crucial that the mortgage doesn’t stretch borrowers too far which is why the key test of affordability takes account of outgoings as well as income.”

And ‘sub-prime’ is back too

Said Louise: “Banks are piling back into the risky subprime mortgages that caused the financial crisis amid a war for customers.

“There has been a surge in the number of deals which target customers with a poor credit history, data shows.”

Poor credit histories

Sub-prime loans are offered to people with poor credit histories which prevent them from obtaining a normal mortgage and usually charge interest above the normal lending rate.

Treasury Select Committee member John Mann said: “The return of subprime mortgages is deeply concerning and suggests banks have not changed at all since the crisis.”