Return of supersized mortgages

As loans SIX times buyers’ salaries raise the spectre of reckless pre-crash lending, it’s the...

FIRST-TIME buyers are saddling themselves with record levels of debt as banks launch supersized mortgages for up to six times people’s salaries.

Britons buying their first home now borrow an average of 3.68 times their annual income – the highest since records began in the 1970s.

In the summer of 2007, the lead-up to the financial crisis, people typically borrowed 3.39 times their salary.

A quarter of mortgages are now for 4.5 times someone’s salary or higher, compared to a fifth just three years ago, according to Bank of England data.

Some banks are lending as much as six times borrowers’ salaries – rates branded ‘irresponsible’ and ‘alarming’ before the housing crash a decade ago.

Families are already a record £25billion in the red – equivalent to more than a fifth of the annual NHS budget.

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.

This week, Darlington Building Society launched a mortgage offering profession-

‘A risk if the cost of your borrowing rises’

als 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 newlyqualified professionals.

Sainsbury’s and Virgin offer up to 5 times people’s income. Most other banks have a maximum loan-to-income ratio of between 4.0 and 4.75, according to financial data site Moneyfacts.

A spokesman for debt charity StepChange said: ‘Supersized 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.’

Since 2014, banks have had to analyse everything from spending habits and utility bills to career prospects to determine whether you can afford a loan.

They are also banned from offering more than 15 per cent of new lending at or above 4.5 times’ income. But the Bank of England has noticed lenders are offering growing numbers of loans just below this threshold.

David Hollingworth, of L&C Mortgages, 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.’

In its recent Financial Stability Report, the Bank of England said: ‘Banks’ risk appetite in mortgage lending has increased over the past few years, possibly in response to weak demand.’ However, it added: ‘In the past few months, the trend to looser lending standards has shown some signs of reversing.’ Earlier this year, it said there were ‘pockets of risk’ in the economy, including ‘risks relating to household indebtedness and mortgage underwriting standards’.

Its data reveals first-time buyers now typically borrow £145,000. This is almost a quarter – or £28,000 – more than just five years ago. At the same time, deals where buyers need less than a 10 per cent deposit have risen by 50 per cent since 2013.

Chris Hunter, of Darlington Building Society, said: ‘We will be individually underwriting every case. This is not a computer saying yes or no. We will not lend to anyone who cannot afford it.’ Santander said it only offered higher loan-to-income ratios to ‘a select few customers and, as always, on the basis of affordability and credit scoring’.

A spokesman for UK Finance, which represents lenders, said: ‘High loan-to-income mortgages are only likely to be available to those who have good prospects for wage increases, such as those in certain professional roles. Before they are able to offer any mortgage, lenders must undertake a strict affordability assessment in accordance with the rules outlined by the regulator.’

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