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Smell the Fear

Guardian Speaks A Little Sense.....

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I don't think this was flagged up over the weekend. I don't agree with their reasoning, but at least they are not in favour of a further mortgage debt deluge.....

A bad idea

With politicians and consumer groups rightly fretting about the record levels of personal debt racked up by credit-hungry Brits, it takes a brave (or foolish) man to tell MPs that banks and building societies are too cautious and should let homebuyers wade far deeper into debt.

But that was what the boss of one of Britain's biggest mortgage lenders told an all-party parliamentary group on debt at a House of Commons seminar this week. The traditional "income multiple" used by mortgage lenders is 3-3.5 x single income (or 2.5-2.75 x joint income). But at this week's seminar, which concentrated on the plight of first-time buyers, Stephen Knight, executive chairman of GMAC-RFC - a substantial lender which offers its mortgages through IFAs - argued that 5 x income should be the "benchmark" for those with good credit scores.

Bigger loans, he said, were the only answer to bridge the yawning house price-to-average earnings gap and simple income multiples are no longer sophisticated enough to determine responsible levels of lending. Now we have clever credit profiling and scoring techniques, he said, lenders can better assess who will be able to pay and who will not.

It may be argued that five times income isn't completely barmy for first time buyers with good job prospects who take long fixed rate deals. But there are two reasons why Mr Knight's special pleadings should be ignored.

First, state-of-the-science credit scoring techniques didn't stop Barclaycard's bad debt levels soaring by 42% in the first six months of this year. Much of that increase was a result of the higher rates and utility bills which hit homebuyers so hard. Second, unlike homebuyers in the rest of European and the US, Brits still prefer short-term fixed and discounted rate deals from which they can walk away easily. Until that changes, it is wholly inappropriate and utterly irresponsible for any major mortgage lender to suggest fill-your-boots levels of home loan debt.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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