In this troubled economy you’d expect mortgage lenders to be cautious about lending. So why are they still handing out massive mortgages when it’s their job to ensure people can meet their repayments?
I’m selling my flat right now (a ‘spacious two-bedroom flat in leafy Wandsworth, perfect for first time buyers’ for anyone who’s interested), and am about to take another notch up on the housing ladder.
When I say “notch-up”, however, I’m not talking about the size of the property, but the size of the mortgage.
Can I afford this mortgage?
When I called my lender to ask them how much they were prepared to lend me, I was expecting to be rather underwhelmed, given the tightening in the credit markets over the past few years. But in fact, they said they were willing to hand me more than 4.5 times the joint incomes of my wife and I – substantially more than I was ever offered before the credit crunch set in.
My first reaction was to hit the web, and fawn over all the amazing properties that were now in my price range. But when I paused to think about how much the monthly payments would be if we extended ourselves to the max, I wasn’t sure how we’d make ends meet.
I know many friends who’ve taken that leap, borrowing more than they could realistically afford, and leaving themselves dangerously exposed in the event that interest rates were to rise.
Over the past 10 years, we’ve seen interest rates broadly moving on a downward trend. But if inflation picks up – as some still predict it may – anyone who’s taken out mortgages at the very edge of what they can afford will find themselves in for a nasty shock.
I don’t think these decisions should be left in the hands of consumers. For us, it’s too easy and too tempting to make the wrong decision. Instead, lenders should be exercising constraint, and making sure that borrowers could still afford their mortgage if interest rates went up considerably.
Thankfully, I had a brief moment of sanity, which could save me a lot of pain over the years to come…