First-time buyers are saddling themselves with record levels of debt as banks launch super-sized 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.
First-time buyers are saddling themselves with record levels of debt as banks launch super-sized mortgages for up to six times people’s salaries. File photo
Some banks are lending as much as six times borrowers’ salaries – rates branded ‘irresponsible’ and ‘alarming’ before the housing crash a decade ago.
Britain’s super-sized mortgages revealed
Most banks currently have a maximum loan-to-income ratio of between x4 and x4.75 a homeowners salary.
However, some mortgage providers are offering as much as SIX times borrowers’ salaries:
- Darlington Building Society x6
- Barclays x5.5
- Santander x5.5
- Sainsbury’s x5
- Virgin x5
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 professionals 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 newly-qualified professionals.
Some banks are lending as much as six times borrowers’ salaries – rates branded ‘irresponsible’ and ‘alarming’ before the housing crash a decade ago. Stock photo
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: ‘Super-sized 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.’
… AND SUBPRIME DEALS ARE BACK TOO
Banks are piling back into the risky subprime mortgages that caused the financial crisis amid a war for customers.
There has been a surge in the number of deals which target customers with a poor credit history, data shows.
Lenders involved include established banks and a firm set up by the ex-boss of collapsed bank Northern Rock.
And in a shocking echo of the last crisis, this mortgage debt is even being packaged up and sold on to other investors in complicated financial products.
Labour MP John Mann, a member of the Treasury select committee, said: ‘The return of subprime mortgages is deeply concerning and suggests banks have not changed at all since the crisis.’
A total of 850 subprime mortgage deals are now available, says research group Moneyfacts – up from 725 in February.
One of the key subprime lenders in Britain was Northern Rock, which suffered the first bank run in over a century and collapsed into the hands of taxpayers.
But several former senior staff now work for a new subprime lender called Belmont Green. The firm is controlled by US private equity firm Pine Brook, which set Belmont up in 2016 with the help of Adam Applegarth, who was boss at the Rock. Belmont declined to comment.
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.’