Income multiples on loans and property prices could soar if long-term fixedrate mortgages take a grip on the market, says Charcol senior technical manager Ray Boulger.
He warns that an increased market for longterm loans would lead to a reduced risk of repossession which would result in lenders increasing earnings' multiples by up to seven times income.
In last week's Budget, Chancellor Gordon Brown announced a review into the reasons for low take-up of longer fixed-rate mortgages because of concerns that the UK economy is increasingly exposed to interest rate volatility.
Boulger says lenders already offer a 0.55 per cent extra income multiple for a 10-year fix than for a five-year fix, meaning some lenders offer up to six times income for properties over £100,000.
He says multiples would soar to seven times income for a 25-year fixed-rate loan, increasing the amount that people could borrow and ultimately pushing up house prices.
With mortgage payments now only 16 per cent of national disposable income down from a long-term average of 30 per cent, mortgage experts say it is income multiples and not types of mortgage that hold back house prices.
Boulger says: “For properties worth over £100,000, I could foresee income multiples going up to seven times for 25-year fixed-rate mortgages.
“This would lead to a one-off short-term increase in house prices.”
Independent mortgage expert Mark Chilton says: “More long-term loans would mean that lenders could lend safely at higher income multiples.”