Abbey warned to be wise when lending 5X income mortgages

John Postlethwaite, consultant at Punter Southall financial management, has warned Abbey that its new scheme, however helpful, must be regulated strictly to avoid pushing the market beyond its limits.

He says: “The Abbey’s decision to lend people up to five their salaries must be used wisely and in itself can be used as a tool to help people move or get on to the property ladder, when otherwise they would not be able to.

“But borrowers should be wary of borrowing so much against their incomes. What happens if their circumstances change and income drops, or if interest rates rise? The borrowers who have borrowed large sums in relation to their salaries will be the hardest hit. With the uncertainty in interest rates at the moment and a widely predicted rise I would question the decision and would hope the Abbey will indeed use it wisely and not just a way to lend more money.

“On a wider basis, as property is continuing to rise, it puts more property within reach if you can borrow more. Therefore with more people being in a position to pay the inflated prices there is a danger that this will increase demand. As we all know an increase in demand will lead to a further increase in price, perhaps pushing the market beyond its normal limit.”