Last week proved to be fun courtesy of our friends at Abbey. As I got in the car early on Wednesday morning I was greeted by the news – in the loosest sense of that word – that Abbey is prepared to lend 5 x income.What I found most staggering was some of the industry comments accompanying the piece. Apparently some people were unaware that you could get 5 x income elsewhere. While it is big news that the second largest lender has come out and openly declared it is prepared to lend to this level, it has been possible to get similar loans from other lenders for quite some time. But Abbey was both brave and clever in showing its hand. I have little doubt its phones went crazy last week. It must have thought long and hard about making its move after what happened to Halifax a few years ago. Halifax declared it was prepared to lend 6 x income, albeit with a number of caveats, and it got a mauling in the press, with this being described as the most irresponsible piece of lending ever. Unsurprisingly, no lender chose to follow Halifax’s lead at that time. What is interesting this time round is that many lenders have already voiced their support. The Yorkshire has even gone so far as issuing a press release that confirms that it offers lending at 5 x salary. It highlights that this is only available with mortgages that offer stability but nevertheless, for it to speak out so quickly shows there is a different perception among consumers and the industry this time round. Even the media is realising that for some people it is perfectly acceptable to borrow 5 x income. Big increases in house prices in recent years have left many would-be home owners out in the cold and lenders have been redesigning their criteria and product ranges to try and help these aspiring buyers. I am sure most of the intermediary community agrees that the traditional income multiples of 3.5 x salary, established in a completely different economic environment from what we have now, are now as up-to-date as a dinosaur and do not reflect the present market in any way. Lenders are justified in changing their lending models and this was overdue. Offering a solution that is right for a particular group of consumers is common sense and good business practice. But this needs to be tempered with an awareness of the fact that the onus is on borrowers to take responsibility for their actions. Those who do not fit the criteria should not go for these multiples. With interest rates all but certain to go up this week and highly likely to rise further in the new year welcome borrowers must ensure they are not overstretching themselves, especially if they don’t have fixed rates. There is a market for this Abbey deal and it is a market that has existed for a while. If lenders, borrowers and indeed brokers act responsibly, this represents one more possible solution to an all too apparent problem.
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