Warnings over first-time buyer debt timebomb

FIRST-TIME buyers are being lured into taking out record amounts of debt, experts warn.

The number of mortgages taken out by those on the first rung of the housing ladder is now at a 12-year high – returning to levels last seen ahead of the credit crisis.

More loans are now issued to first home seekers than any other type of buyer, research from Halifax reveals.

Buyers are also stretching their budgets more than ever to get on the property ladder – borrowing a record 3.64 times their salary on average, according to trade body UK Finance.

Banks are fuelling the boom by slashing rates for borrowers with just a 5 per cent deposit and employing ‘aggressive’ tactics to ensure loans are approved.

Experts warn if interest rates rise or house prices fall, households could quickly find themselves in financial trouble.

Property sales at the top end of the market have slowed as concerns about Brexit and high stamp duty bills mean many homeowners have delayed putting their house up for sale.

As banks turn their attention to the first-time buyer market, the number of deals that require a deposit of just 5 per cent has soared from 199 to 299 – a 50 per cent rise in a year, according to data analysts Defaqto. Rates have also plummeted, with the average two-year deal today just 3.41 per cent compared to 3.95 per cent last August.

Halifax says the number of first-time buyers taking out mortgages has nearly doubled in a decade, from 192,300 in 2008 to 372,000 in 2018. Some lenders are also relaxing rules to win over new borrowers.

Around 20, including Barclays, Metro and Clydesdale, now allow buyers to add parents and family members to their mortgage application. Some lenders even offer 100 per cent loans if relatives agree to deposit savings with them.

Richard Campo, of mortgage advisors Rose Capital Partners, said banks were lending ‘in the most aggressive manner... since the credit crunch’.

Sue Anderson, of debt charity StepChange, urged lenders to ‘pause for thought’, adding: ‘Household budgets are being stretched and mortgage debt compared to the value of the property is getting higher.’

She said homeowners may end up in negative equity if house prices drop and risk being repossessed if their income falls.

However, mortgage experts claim first-time buyers are protected from overstretching by ‘stress testing’ – which means borrowers must prove they could afford mortgage repayments if interest rates rose.

A spokesman for UK Finance said: ‘All mortgages are underpinned by strict rules to ensure lending is safe and responsible.’

‘Aggressive lending’