Mortgages at 7 times salary for first time since Northern Rock

Mortgages for up to seven times a person’s salary will be offered for the first time since Northern Rock was nationalised in 2008.

George Nixon 

The new lending criteria, from the online lender Habito, available from yesterday, has raised fears of people taking on huge debt at a time of economic uncertainty and rising house prices, with energy bills forecast to jump by 50 per cent in the spring.

Habito, which in March launched Britain’s first 40-year fixed-rate mortgage, said that it would lend up to £1.5 million to borrowers. A deposit of 10 per cent of the purchase price is required.

It is open to couples buying jointly but only one of them will be able to borrow seven times their income; the multiple for the other income will be limited to five.

Since the 2008 financial crisis, banks have largely only lent up to four times someone’s income.

Under post-crisis Bank of England rules, only 15 per cent of a lender’s mortgage book a year can be lent out to people borrowing more than four and a half times their income.

The announcement came on the day that the former HSBC chairman Sir Douglas Flint warned borrowers against taking out too much debt to get on the property ladder because interest rates could rise several times over the coming 12 months.

“I personally don’t think this is the time to encourage people to overleverage [borrow too much] in the housing market,” he told The Mail on Sunday. “House prices, as a multiple of average income, are at an all-time high.”

Someone earning £80,000 would be able to borrow £560,000 under Habito’s affordability criteria, enough for a 90 per cent mortgage on a home worth about £622,000.

If they were limited to borrowing four and a half times their income, the largest loan they could borrow would be £360,000 to buy a £400,000 property with a 10 per cent deposit. It is available on fixed-rate mortgages of between 15 and 40 years. The average term is 25, Habito said.

Andrew Montlake, from the broker Coreco, said: “You could find yourself stuck with the lender for the long term, unable to remortgage elsewhere if circumstances change.

“It may seem tempting just to use this for a short-term solution to getting on to the housing ladder but that could prove an expensive mistake.”

Borrowers must have a 12-month employment history, and either earn £25,000 and be employed in certain sectors such as the police, fire and health services; or be accountants, engineers, lawyers or teachers; or earn £75,000 a year.

James Daley, of the consumer group Fairer Finance, said: “The most important thing if Habito start doing this is they need to make sure that they are lending in a way that is affordable for borrowers.

“I do think it’s a dangerous moment. We could have seen this emerge a few years ago, but the timing when we appear to be in a time of rising interest rates doesn’t seem the best. If they get it wrong, they’ll be the face of the next borrowing crisis.”

Daniel Hegarty, Habito’s chief executive, said: “As a lender that considers every applicant’s case individually we’re confident that with suitable criteria in place, in the right circumstances, eligible customers can safely and securely boost their borrowing to buy the home that truly suits their needs and their life plans.

“Fixed-for-life mortgages are already popular in other parts of the world, including [the US] and Europe, and we agree with the British government that longer-term fixed-rate mortgages can help steady the housing market by providing more certainty to borrowers.”