Government puts boot into 100% loans
In a recent speech Gordon Brown attacked lenders for making 100%-plus mortgages available, leading to fears that new mortgage regulations would restrict availability for first-time buyers. These fears increased when a report from the financial services regulator raised the idea of capping the maximum multiple of income that lenders could offer on a mortgage loan.
In fact Brown was technically wrong. Nobody ever offered 100%-plus mortgages. A few lenders offered 95% loans and then made unsecured loans available on top so that first-time buyers could kit out their new homes. But most lenders agree that in practice it was pretty daft to do this and nobody offers such deals today.
Income multiples are a much more contentious issue. Most lenders have abandoned them, and instead they use ‘affordability’ scoring. This means they look at the specifics of your outgoings, trying to ensure that your mortgage repayments aren’t more than a certain proportion of your net spendable income. Most advisers would say that 25-30% is the maximum percentage of net income you should apply to repayments but lenders vary in the figures they use.
The affordability approach makes much more sense than using income multiples to set maximum loans. After all, you may have no car hp payments, no expensive holidays or gym club memberships and barely if ever go out on the razz. Why should your loan be determined on the same basis as that of your mate, earning the same as you but with a fancy car on hp, a taste in exotic holidays, a pricey gym membership and a habit of drinking in most Premier League matches at the local pub?
In practice, though, the need for a 20-25% deposit is the single biggest handicap for most first time buyers and there’s no sign that lenders want to make it any easier.
