Half of home loans stretch buyers to limit

ALMOST half of all mortgage borrowers are stretching themselves to the limit to get on the housing ladder.

New figures from the Bank of England reveal unprecedented numbers of borrowers are taking on what critics fear are dangerously high levels of debt in a rush for ultra-cheap loans.

It will spark fears that if interest rates rise, millions may fail to make ends meet.

A record 47 per cent of mortgages in the third quarter of 2018 went to customers on what the Bank of England calls ‘high loan to income multiples’.

For a couple, this means borrowing more than three times their annual income – or £120,000 on a combined salary of £40,000. A single buyer falls into the same category if they borrow four times their earnings, equal to someone with a £30,000 salary taking out £120,000-plus.

Borrowing this much could bring trouble if interest rates rise from their current historically low rates.

Justin Modray, of financial advice group Candid Money, said: ‘If people are stretching themselves to get on the housing ladder now, it’s probably never going to be more afforda- ble than this. If we do see a spike in interest rates it could leave people struggling to afford their mortgages. Rates are likely to go up.’

Separate statistics from financial data firm Moneyfacts show that banks are luring customers with the minimum deposit.

Banks are offering two-year fixed rate mortgages at a record-low average of 3.54 per cent interest for customers with a deposit of just 5 per cent.

At this rate, interest repayments on £190,000 over 25 years would be £955 a month.

Such tiny deposits leave savers at risk of negative equity, because just a 5 per cent fall in house prices would wipe out their entire stake.

It is dangerous for the economy if large numbers of homeowners are in negative equity. If they are suddenly forced to sell, banks face huge losses.

Labour MP John Mann, a member of the Treasury select committee, said: ‘It is irresponsible for banks to encourage hard-pressed borrowers to take out a mortgage they may struggle to repay.

‘If interest rates go up – or if house prices fall – then there could be serious consequences for the economy.

‘Rates are likely to go up’