Could risky mortgages be back on the rise


More people are taking out, and more to the point, being allowed to take out, “risky” mortgages than since the financial crash, figures are indicating.

The Financial Conduct Authority (FCA) define a risky mortgage as one with a combination of low deposit, and with a high income multiple.

Borrowers, especially first time buyers, are limited to how much a bank will lend to them, limited to a multiplication of their income per year. Different banks may have different limits on the income multiple limit that they will offer, but all, under regulations, will have to do an in-deep analysis of how able an applicant will be to pay back the loan on time.

But, when this amount is a low income multiple, when combined with a low deposit, such as those available through the Help to Buy scheme, the risks may still be quite high that the borrower will be unable to pay the loan back, should interest rates jump (as they have been expected to for some time now).

One in seven first time buyers have supposedly taken out a mortgage with high risk this year, it has been found.

18,723 mortgages were approved in the first half of 2015, according to figures obtained from the FCA through a freedom of information request.

First time buyers are 2.5 times more likely to have one of these high risk loans.

Before the financial crash, 20.6% of loans lent out were risky. This figure has come down, but apparently the rate of risky loans lent out is at its highest since this high in 2008. 2011 saw just 1.7% of loans being this risky, but since then, the number appears to have been climbing.

This is a worrying array of figures, as it indicates that the housing market, in its desperation to get moving again, may be heading back towards irresponsible lending, despite regulations which came into effect last year.

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