New data from the Council of Mortgage Lenders (CML) has shown an increasing number of lenders are lending at high income multiples.
The Council’s report revealed that the median term for first-time buyers has lengthened from 25 to 30 years within a short time.
The study by CML shows that many lenders are going against the Financial Policy Committee (FPC) recommendations made in 2014 which said that lenders should make sure borrowers could afford their mortgage payments if the base rate increased three per cent during the first five years of them taking on the home loan.
Lenders were also told by the FPC to restrict their new lending such that no more than 15 per cent was at income multiples of 4.5 or more.
After the FPC’s initial statement, data shows that lenders’ appetite to lend at high income multiples did decrease and the proportion of high income multiple lending eased back in 2015 to just below seven per cent.
However, Bob Pannell, Chief Economist at the CML, has said that much has changed in the last six months with the incidence of high income multiple lending increasing sharply.
“According to our estimates, one of the FPC’s core indicators is now showing that income multiples are within a whisker of their mid-2014 peak,” said Mr Pannell.
“Mounting affordability pressures, as house prices outpace earnings growth across much of the UK, provide the most plausible explanation for the change of direction. Lengthening payment terms provide strong evidence that such pressures are intensifying.
“Although the use of longer terms varies greatly across different types of borrower, reflecting their respective age profiles, the underlying trend is clear.”
Among first-time buyers, the proportion of borrowers taking out loans with a maturity of more than 25 years has continued to increase and now accounts for nearly 60 per cent of the total; roughly double that of a decade ago.