Mortgage offer of six time salary likely to increase debt woes
News that first time buyers are now being offered mortgages equal to six times their salaries could plunge borrowers into further debt warns Wendy Hooley, partner with Flints Direct.
The Derby-based conveyancing service recently reported a rise in the number of Derbyshire homeowners finding themselves in negative equity and fears the widening gap between house prices and salaries can only make the situation worse.
Wendy said: “Mortgage lenders should only lend up to six times’ income to those who can comfortably afford it otherwise borrowers will find they are working purely to repay the mortgage.“
They’ll have little enough money left over to cover emergencies and meet everyday living expenses."
“Many households at the lower end of the property market are already struggling to finance high levels of personal debt so committing to a huge mortgage will only add to their financial worries.”
And, warned Wendy, some borrowers were being tempted to take out an additional secured loan against their homes in order to service personal debts such as car loans, overdrafts and credit cards.
She added “This can lead to serious problems when they come to sell, for although some lenders will allow borrowers to change their secured loan into an unsecured loan so the property can be sold, others will not.
“Homeowners who find themselves with two secured charges against their home may not be able to sell at all – and those who do put their homes on the market will be reliant on achieving at least the asking price to pay off their debts.”
To determine levels of personal debt, Flints Direct now asks its clients to provide details of any outstanding loans so their financial health can be assessed before they proceed.
Wendy said: “This is not something we were doing a year ago, but given the increase in negative equity cases resulting from personal debt levels, it is an issue people need to consider carefully.
“It’s a depressing situation which is not helped by borrowers taking on more mortgage debt than they can realistically afford. There is little we can do as lawyers – apart from recommend that homeowners with money problems seek help from a debt counsellor and ask that people assess their ability to pay a large mortgage before committing to one.”