In a move that has raised eyebrows in the financial industry, a UK lender has announced that it will allow borrowers to take out loans up to seven times their income for home purchases. This is a significant increase from the traditional lending limit of four to five times a borrower’s income.
The lender, which has not been named, claims that the move is in response to the increasing cost of housing in the UK, particularly in London and the South East. With property prices continuing to rise, many potential buyers are finding it difficult to secure a mortgage that will allow them to purchase a home in their desired location.
However, critics have warned that allowing borrowers to take on such high levels of debt could be dangerous, particularly if interest rates rise in the future. They argue that borrowers could find themselves struggling to make repayments, which could lead to defaults and ultimately, repossession.
The move has also been criticised for potentially exacerbating the UK’s already high levels of household debt. According to the Bank of England, UK households currently owe a total of Â£1.7 trillion in debt, with mortgage debt accounting for the largest proportion of this.
Despite these concerns, the lender has defended its decision, stating that it will only lend to borrowers who can demonstrate that they can afford the repayments. It has also pointed out that it will be using a range of affordability checks and stress tests to ensure that borrowers are not taking on more debt than they can handle.
The move by the lender is likely to be welcomed by many potential homebuyers who have been struggling to secure a mortgage in the current climate. However, it remains to be seen whether other lenders will follow suit and increase their lending limits, or whether this move will be seen as a risky outlier in an already uncertain market.