Buyers overstretching for new mortgages

[brian]

The BBC reports that figures from the Council for Mortgage Lenders (CML) show buyers are more stretched on mortgage application than ever before:

http://news.bbc.co.uk/1/hi/business/5078810.stm

first-time buyers borrowed on average 3.21 times their incomes to get a loan.

That was greater than the previous highest multiple set in October 2004.

For all home buyers together, average loans were 3.04 times their incomes, which equalled the current record multiple set in the autumn of 2004.

Apparently, more fixed-rate mortgages are being offered against future interest rates, with fixed-priced mortgages now accounting for 71% of transactions.

Still, overall, it's pretty scary that we're becoming such a debt-ridden society, with no end in sight to this continued process.

[SharedSpaces]

Brian

I have to say that I'm surprised that the multiple is so low. With lenders bending over backwards to increase their multiples and now going for affordability scales rather than multiples of income, and the rise in acceptability of self certification mortgages, not to mention that the average property price in the UK is far more than 3x the average income in the UK, I thought it would be higher.

One solution to the problem of stretching yourself too thin financially is to spend less, but that would mean not being able to get onto the property ladder or making some fairly serious compromises. Clubbing together with someone else to buy can be a way of you spending less, and not having to compromise, an all round winning solution. When you multiply your buying power and share the costs with someone else you can also protect yourself from the property market and interest rate fluctuations that could get those who stretched themselves into serious trouble.

Richard
www.sharedspaces.co.uk
The UK's co-buyer network

[OneofaKind]

I think a major reason why there are a lot of people opting for Fixed rate Mortgages, is that people still live in fear of Black Wednesday and are trying to protect themselves.

Linked into that the probability is that in the near future, rates are more likely to go up then down.

[brian]

Agreed - the Bank of England is slow to move, but all the signs at present suggest a rate rise to 5% wouldn't be unexpected later in the year - probably around November rather than August, though.