Lenders bend rules in mortgage market scramble

Housebuyers are being offered loans of up to four times their salary in the rush for mortgages. Leading lenders are breaching their published maximum loan limits in the scramble for market share amid the revival in house prices.


Woolwich, Cheltenham & Gloucester and Bank of Scotland are cited by brokers as lenders which are frequently willing to go beyond official limits and offer loans of quadruple the salary, even when the borrower has only a small deposit.


Moneyfacts, the industry reference 'bible' quotes official income multiples for C&G as three times first income. A C&G spokeswoman admitted, however, that the reality is different. 'Branch managers have discretion on any case and can bend the rules. We do not have a top limit, although we do not do lots of high multiple lending.' C&G is also willing to give loans of up to 95 per cent of a property's value.


Few lenders will reveal that they are willing to stretch their lending criteria for fear of being overwhelmed by low-quality business.


But Simon Knight, mortgage adviser at Independent Mortgage Collection said: 'You can now get four times income even at 95 per cent loan-to-value. Even at that level, the exposure to the lender is a lot less than three times at double-digit interest rates.'


Many lenders are beginning to ditch standard income multiples in favour of affordability tests, which often allow borrowers to obtain much higher mortgages. Standard Life Bank, which has grabbed more than 10 per cent of the mortgage market since its launch three months ago, uses the affordability test and admits that a tenth of its lending is above 3.5 times income.


But the Council of Mortgage Lenders insists that there is no evidence of a return to the excessive lending practices of the 1980s. 'Where you are seeing mortgage stretching, it is in relation to the best quality risk, usually young professionals who are newly qualified and where it is reasonable to expect a rising salary.'


CML figures indicate that the average income multiple for first-time buyers is 2.2 times income, however, only marginally above the level of the early 1990s.


Evidence of a loosening in the mortgage purse strings is also growing in the booming buy-to-let mortgage market. First Active, a specialist in the field recently refused an applicant who had already taken out loans on 20 houses and flats - even though his annual earnings are less than ?10,000 a year.