Mortgage Costs and House Prices in UK – April 2014


Large Mortgage Lending Crisis

The Bank of England has confirmed that the number of borrowers being offered large mortgages is at an all-time high. The number of home loans categorized as “large” is at its highest  since it started to be recorded in 2005.

The current estimation is that one in ten buyers are borrowing more than four times their income. This is creating fears that England is in the grip of a housing bubble.

There are counter-arguments from government sources that house prices have fallen during the recession and they are still well below their peak.

In the year to January house prices have risen 6.8%, and the forecast from the Budget watchdog has predicted that home prices will increase by a further 8.5% in the year.

The concern is that borrowers have taken out larger mortgages because low interest rates have made mortgage costs affordable. As house prices rise higher, borrowers will have to stretch further and most probably loan to income ratio will also increase.

The Bank of England has classified “high income multiple”, as a mortgage greater than 3.5 times single income or 2.75 joint income.

After this warning by the Bank of England it added that it expected to have new powers to force lenders to toughen up affordability tests for borrowers from June, i.e: the Bank of England could set a loan-to-income cap in the future, if it sees potential troubles ahead.

LSL Property Services research showed the volume number of first time buyers in February 2014 jumped 42% compared with last year to 22,400. This has been helped by the Government’s Help-to-Buy Scheme.


Source: The Times 28/03/2014.