Experts voice concern over 5 times salary mortgages

Thu, 02 Nov 2006

Mortgage news yesterday revealed that popular lender Abbey would now offer mortgage loans at five times salary. Experts in the debt industry were quick to voice their concerns over the new schemes, whilst industry insiders praised the new initiatives.

According to the Hay Group, average workers would have to hand over half of their monthly income in order to repay their mortgage on an average home . By comparing the average salaries and house prices in England throughout 430 towns, Hay Group found that the average house in each area was six times average salary. In London and the South East this reached 9 and 8.5 times respectively.

The news comes at the same time as Abbey’s decision to lend five times salary. Other lenders will sometimes lend above this multiple in some instances. The traditional criteria of 3.5 times salary maximum is being eroded.

A debt charity, the Consumer Credit Counselling Service, claimed: "Entering into a mortgage deal of this size is like walking along a path with a precipice on one side. Those who stretch their budget could leave themselves vulnerable if they have a change of circumstances such as losing their income or divorce . They will also be hit if interest rates rise."

A spokesman for the Liberal Democrats’ Treasury, Vince Cable, voiced the concerns felt by many people: "With interest rates, unemployment and council tax all rising, it is likely that these irresponsible lending practices will lead to financial disaster for many people. While the banks may claim they are trying to help first-time buyers, in reality it will only stoke the housing market further, putting home ownership out of reach for many more people."
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