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Multiples are a scandal-in-waiting

The papers are full of concern over the huge amount of outstanding unsecured personal debt in the UK. The base rate has edged up 0.25% and the Monetary Policy Committee is widely acknowledged to be ready to recommend raising the rate further. Property possessions are on the up and more people are failing to meet their financial liabilities.

The price of goods, utilities and services is going up faster than wages and for an increasing number of people life has become more difficult. In fact, some have progressed beyond difficulty into insolvency and financial catastrophe. This country is going through a torrid financial time.

So against this backdrop, I question how lenders can grant mortgages to prospective home buyers using excessive multiples which in some cases have reportedly reached the heady heights of 6 x or 8 x income. Surely this is irresponsibility that borders on the criminal.

And this taking place within a regulated environment designed to protect consumers. It doesn’t feel to me like this is an area where consumers are being protected at all.

In the aftermath of the mis-selling scandals surrounding endowments, pensions, precipice bonds and home income plans our regulators insisted that we investigate and take due regard of our customers’ attitude to risk.

This being so, what sort of risk assessment could justify apportioning 8 x a buyer’s annual income on a single element of life’s expenses – a mortgage?

And given our 21st century propensity for the retrospective apportionment of blame I wonder how long it will be before we are hit with an income multiple mis-selling scandal.

While I believe many lenders, product pro-viders and brokers can make a good fist of defending their endowment and pension positions – not least because so many punters lie about the circumstances of sale anyway – it’s difficult to see how to defend encouraging people to enter into unaffordable debt.

I was convinced that the next big scandal to give us column inches and personal angst would be interest-only mortgages and I still believe this is on its way. But the rate of run-out of interest-only mortgages will take far longer to affect us than will the insolvency problem for people who have foolishly mortgaged themselves not just to the hilt but far beyond it.

And if endowments gave us a barrel-load of the messy stuff, can you imagine the fields of fertiliser coming our way when the excessive income multiples scandal arrives?

We’re going to need another fan because the only people who won’t be held to be at fault in all this will be the idiots who said “Yes, I’ll have one.” Their defence? That the professionals who they dealt with should have known that they couldn’t afford 6 x or 7 x their income. And for once, they’ll be right.

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