Did stamp duty holidays tempt buyers to grow their finances?Mortgages more than four times salary peaked in five years
- Rapid increase in loans to single-person households borrowing more than four times the salary
- Rising home prices meant that 12.6% of mortgages were lent to this category.
- Caps are generally 4.5 times more income, but some lenders offer 5 times more
- Furloughs have ended and jobs are at stake, which can lead to higher levels of debt
Stamp duty holidays and rising home prices have led to a surge in the number of mortgages lent to people at high risk of default.
New figures show that the number of single-person households renting more than four times their salary reached its highest level in five years earlier this year as buyers worked to raise house prices.
In the first three months of 2021, 12.6% of new mortgages were lent to people in that high-risk category, according to auditor Mothers.
Risky Business: Banks are lending a higher percentage of mortgages to borrowers who are theoretically likely to default on loans, according to new figures
This is the highest percentage since 2016, a surge of more than one point since before the first three months of the 2019 pandemic, where 11.4% of single-income customers borrowed more than four times their wages.
“More buyers have been tempted to grow their finances,” Mothers said, blaming stamp duty holidays and rising mortgage rates.
Interest rates are at historically low levels, Halifax launched a two-year fixed rate at 0.83%..
Since the beginning of the pandemic, buyers at all levels of the market have been forced to pay more for their homes.
This is due to the surge in demand for moving as people’s lifestyle needs change. A stamp duty holiday that provided people with tax savings of up to £ 15,000 before the tax was reduced to £ 5,000 at the end of June.
According to the latest quote, home prices are 10.5% surge in the year to July, Increases by about £ 25,000.
Most mainstream lenders allow mortgage holders to borrow only four or 4.5 times their salary, but lenders with significant capital buildup in their homes can borrow much less. Often.
Mortgage Loans: According to Mothers, the percentage of individual homebuyers borrowing more than four times the amount they earn each year has increased to 12.6%.
However, there are exceptions to that rule. For example, Nationwide changed its policy earlier this year as follows: Allow first-time buyers to borrow up to 5.5 times their salary -20% more than the standard limit.
However, to do so, you need to stick to the mortgage transaction for at least five years.
People who own a proportionately small number of homes are also at increased risk of negative equity if home prices fall.
Mothers partner Paul Rouse said lending at higher salary multiples could cause problems for both customers and lenders, especially as government wage support schemes such as furloughs have ended. rice field.
He also does not have equity from existing homes to use for deposits, which leads to higher levels of personal debt, especially for first-time buyers who usually borrow the most compared to salary. Said there is a possibility.
“Some borrowers, especially first-time buyers with small deposits, may have overextended themselves,” Rouse said.
“If the escape from the blockage is more bumpy than expected, this can lead to serious unemployment.
“It would be miraculous if such a big blow to the economy could be absorbed without a higher level of personal bankruptcy.”
Pandemic mortgage lenders are under pressure from regulators to provide more support to unpaid borrowers.
This may be good news for the customer, but it can soak the lender in hot water.
“Lenders are in an uncomfortable position because regulators are pressured to provide tolerance to struggling borrowers,” Rouse said.
High-risk mortgage lending peaks in five years with more than four times the salary
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