Homebuyers are being offered unprecedented borrowing power by banks and building societies, which are now marketing mainstream mortgages of up to five times joint salary levels as they attempt to win first-time buyers.
Abbey, the UK’s second-largest home loans provider, has raised the standard amount it will lend homebuyers to five times either their single or joint salaries, eclipsing the traditional borrowing levels of around three and a half times salary.
It followed last week’s decision by Bank of Ireland Mortgages and Bristol and West to increase standard salary multiples from four to 4.5 times. Scottish Widows Bank and Nationwide have also raised their standard borrowing levels in recent months.
The higher mortgage amounts come as more first-time buyers are being priced out by rapidly rising property prices. The latest figures from the Council of Mortgage Lenders showed that the average income multiple for first-time buyers hit a record of 3.27 times salary in August.
Melanie Bien, associate director at independent mortgage broker, Savills Private Finance, said of Abbey’s move: “It is unprecedented for a mortgage lender to offer this much on a joint basis. It seems lenders are going all out to enable first-time buyers to borrow as much as they can.”
Mortgage brokers say other lenders are set to follow suit for fear of being left behind.Income multiples of four times or more are now becoming commonplace. Many lenders are also calculating how much they will lend on how affordable the repayments are, which in some exceptional cases equates to income multiples of up to seven times salary.
The trend towards higher income multiples has led brokers to fear borrowers are overstretching themselves, especially as rate rises are expected imminently. Nick Gardner, director at Chase De Vere Mortgage Management, said: “It is quite possible that if people borrow the maximum they can get away with they will be overstretching themselves. It may then only take one or two rate rises to put such a squeeze on their finances that they can no longer make ends meet.”
A couple on a joint gross income of £50,000 who borrow £250,000 would typically face monthly repayments on current rates of more than £1,400 a month or just over £17,000 a year. Abbey said yesterday: “Lending five times salary may sound high but really is something we have to do given what is happening with house prices.”
The bank said that only borrowers who have strong credit records and low levels of other debt would qualify.
However, Abbey has also relaxed other borrowing criteria such as the level of cash deposits required and the criteria for “fast-tracking” individuals – mortgage approvals that do not require proof of income.
In some cases Abbey will now lend couples five times each of their salaries without requiring confirmation of earnings.