As house prices continue to increase faster than income rises can keep pace, Co-operative Insurance Services is warning frustrated borrowers to think carefully before stretching their income multiples too far.
An increasing number of lenders are offering four and five times people's salary and beginning to stretch to 110% mortgages in an attempt to plug the widening gap between salaries and house prices.
Although such offers can help first-time buyers on the property ladder, the CIS asks them to consider whether they will be able to maintain the property once they've bought it, pay the bills, have a social life, as well as saving for a 'rainy day'.
The CIS has put together the following tips on sensible borrowing:
- Don't stretch yourself too much and make sure that if you take out a variable rate mortgage that you can cope with the higher repayments if interest rates do rise, or take a out a fixed rate to guard against this possibility, during the fixed rate period
- Make sure you have some cash savings for emergencies
- Redundancy and income protection insurance are important to give you peace of mind should you be made redundant or fall ill
- Watch your credit card bills and other loan arrangements which if left unmanaged can put added pressure on your monthly finances
- When taking out your mortgage shop around for the other products that you also need such as life cover and household insurance, to ensure you get the best deal
- Set yourself a budget and stick to it
Russ Brady, CIS head of public relations, says: “It is important to remember that people have other debts aside from their mortgage, as well as bills to pay and social lives to lead. Care has to be taken when offering people increasingly higher multiples of salary just to get them on the property ladder. This is especially the case at a time of low levels of interest rates and unemployment, which may not always be sustainable over the typical mortgage period.”