High income-multiple loans on variable-rate deals could create a misselling crisis and should be banned, claims economist John Wriglesworth.
Speaking at the Mortgage Business Expo in London last week, he said there is no problem with lenders offering up to nine times income multiples as long as they are on longterm fixed rates as many people with little residual debt and low financial commitments can afford such deals.
But Wriglesworth, who is managing director of the Wriglesworth Consultancy, said any such deal on a variable rate can expose the client to too much risk.
Abbey attracted significant publicity earlier this month after launching a five times income mortgage although it was by no means the first to do so, with Darlington Building Society having a six times income policy.
Wriglesworth said: “I think it could go to seven, eight or nine times income as long as it is on a long-term fix. Lenders would be irresponsible with high variable interest rates as that is exposure to risk which is unacceptable. Two-year discounts should be banned with high income multiples as they are a disgrace. It is misselling. There will be a lot of complaints if that happens.”
Hamptons International Mortgages technical director Jonathan Cornell says: “Abbey will seem like a Scrooge in a few years as six or seven times multiples will be normal. I do not agree that lenders would be irresponsible on long-term variable deals as there is caveat emptor and people are not forced to take out a mortgage.”
Wriglesworth also attacked the Government and Deputy Prime Minister John Prescott for failing to build enough homes to satisfy demandHe said: “John Prescott and the Government have been talking about building new homes but the numbers being built are absolutely pathetic in the scheme of things.”