Property Articles

Abbey National, Britain’s second-largest home loan provider, has recently announced that the home buyers can now borrow up to five times their salary with a new mortgage.

This has sparked fierce concern from consumer groups, claiming that this is likely to bankrupt people. Some people are even calling this move irresponsible and careless.
A close examination of the the mortgage suggests that this loan is not going to help the UK’s average first-time buyer. The individuals or couples with a 25% deposit and an annual income of more than £50,000 will be able to apply. Moreover, it is aimed at those borrowers with good credit ratings and low debt levels. The average salary in the UK is approximately £30,000.

The bank stated that this new mortgage was due to the UK’s ever increasing house prices. The average UK house price is around £180,000 – but vastly higher in London and the South East. Mortgage lenders calculate how much they will lend based on an earnings multiple, usually around 3.5 times the salary of the individual or couple taking out the loan. Abbey’s move follows recent moves from the Bank of Ireland Mortgages and Bristol & West to increase their standard salary multiple allowances from 4 to 4.5.

Affordability?

Let’s look at some realistic figures to see how this mortgage adds up. A couple borrowing £250,000 with a shared annual income of £50,000 would face repayments of about £1,400 a month - £17,000 a year. If this couple has borrowed £250,000, they would be buying a property for more than £330,000, which would require a deposit of around £80,000 (25% of the purchase price) and a stamp duty payment of about £10,000 (3% of the purchase price). To qualify for the mortgage, this couple would need: Almost £100,000 in savings to cover the deposit and stamp duty