Opinion: we risk returning to the days of reckless mortgage lending

With Nationwide now offering mortgages worth six times a borrower’s income, Piper Terett wonders whether we've learned nothing from the subprime mortgage debacle.

I had to read twice the announcement that Nationwide is to offer mortgages at a multiple of six times income to house buyers with just a 5% deposit.

OK, so we know how hard it is for first-time buyers to get on the housing ladder right now.

Many of them have been saving for years and are forced to keep renting or living with their parents to put together enough cash for a deposit.

Some of my friends have had to do this – especially if they are buying solo.

And mortgage applicants will still have to meet relatively strict affordability criteria, which will be assessed individually.

But is it sensible to encourage people to overstretch themselves and take on this kind of debt – not to mention risking negative equity?

As Albert Einstein once said, insanity is doing the same thing over and over again and expecting a different outcome.

Why can’t we learn from recent housing market history?

While it may be a world away from the days of 125% loan-to-value mortgages and subprime loans, encouraging first-time buyers to take such risks with their finances without the cushion of a decent deposit behind them is a worrying development.

Many home buyers are already able to take out 35 or even 40-year mortgages, instead of the standard 25 years, which means many could be paying off debt until they are 70 or even 75.

But who knows if any of us will still be fit enough to work and able to afford the mortgage at that age, when many will be retired?

And while interest rates have fallen a little, they still remain relatively high and so does the cost of living, which is up by 20% over the past two years due to the rising cost of energy and food. 

The job market isn’t exactly firing on all cylinders either.

Mortgage payments are not your only cost as a homeowner

What’s more, when you’re a homeowner the monthly mortgage payment isn’t the only outlay to worry about.

I know when I bought my first property, I was surprised to find that I was spending out a lot more than I expected on things such as buildings and contents insurance and property maintenance, on top of my mortgage. 

When you’re renting, it’s the landlord’s responsibility to insure the building and fix anything that goes wrong.

But when you’re the homeowner, it’s down to you.

Money was pretty tight once I’d paid for all the extras and I dreaded something major going wrong, which I couldn’t afford to pay for.  

It was a relief when my partner moved in and was able to share the financial burden.

And while this development might seem to open up the housing market to buyers who couldn’t previously afford a purchase, offering such sums is actually likely to inflate house prices even further.

Adding this fuel to the fire will ultimately make a property purchase even more out of reach to those struggling to get onto the ladder.

If we go a little further back in recent history, we might recall mid-to-late 1980s and 1990s homeowners struggling with negative equity, paying interest rates of 15%, struggling to pay the bills and having their homes repossessed. 

Is this what we are setting our young people up for?

While we Brits are obsessed with owning our own homes, it is really worth risking financial ruin for?

Maybe it’s time we reprioritise our thinking on this.

An Englishman or woman’s home may be their castle but it could just as easily be a rented one as an ill-afforded, overpriced one 95% owned by the lender.