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Heroes, not villains

The latest villain of the mortgage industry – at least as far as the national media would have us believe – is Abbey. Not for overcharging customers, imposing swingeing fees or randomly repossessing property but for introducing previously unheard of income multiples to help people buy a home.

Anyone who knows anything about the industry knows this is not true. Abbey is prepared to lend up to five times income to customers who fulfil certain criteria but this is by no means revolutionary. Companies have been lending five times income – and more – for years.

As house price growth continues to outstrip increases in incomes, greater multiples are the only way many people are going to get on the housing ladder in the first place or progress up it. This is why there is also a need for higher loan to value ratios, with HBOS joining Northern Rock in offering loans of up to 125 per cent LTV and Yorkshire Building Society rumoured to be the next lender prepared to do the same.

This is the area where brokers can real value for clients as we know who will lend higher income multiples or offer higher LTVs, even if they do not widely advertise the fact.

The coverage of Abbey’s admirable stance is painful evidence of why there is a need for secrecy. Who can forget the media outrage that greeted Halifax’s decision to lend six times income some years ago? Halifax was pilloried for its move and promptly backtracked.

The move away from strict income multiples towards affordability calculations is enabling lenders to help borrowers achieve the level of funding they require. Lenders are being far less irresponsible than the media give them credit for. Credit histories are examined and the lender get a full picture of a borrower’s outgoings as well as income.

The upshot is that applicants who can afford higher income multiples can get the loan they need. Lenders are in the business of making money and they want borrowers to meet their monthly payments because having to repossess a property and sell it costs time and money and generates bad publicity.

A few headlines may seem harmless enough but the fallout can be considerable. The damage done is not necessarily to the industry but to first-time buyers or anyone struggling to move up the housing ladder. Negative publicity dissuades lenders from offering deals to enable borrowers to raise enough cash to get on the property ladder.

The proof is in the pudding. Abbey was not the only lender which was going to announce a five times income deal that week but the other firm pulled out when it witnessed the battering that Abbey took.

The media have a duty to report injustice, misselling and corruption in the industry but to attack a lender for offering five times income to borrowers who earn a minimum of £60,000 a year and have at least a 25 per cent deposit is to choose the wrong target and do more harm than good. The archaic three times income was introduced when interest rates were more than twice what they are today and one can argue that it is high time that multiples were raised.

Likewise, slating HBOS for joining the 125 per cent LTV club is wrong. It is an indication of present market conditions that such products are required.

Abbey took a brave step and HBOS has approached the same problem from a different angle. It is the right thing for both lenders to do.

Mark Harris is managing director of Savills Private Finance

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