Loan danger

First-time buyers are still being offered unaffordable mortgages that would leave them close to the breadline, despite banks’ pledges that the irresponsible lending spree that fuelled the repossessions crisis is over.

A ROOF mystery shopping exercise has found that first-time buyers who borrowed the maximum on offer from high street lenders and brokers would not simply be faced with a cut in their standard of living – the repayments would leave them close to the poverty line.

For borrowers in such a position, any slight change in their circumstances – an unexpected bill, reduced working hours, or having to switch to a lower paid job – would put them at risk of losing their homes.

The first-time buyer, a 28-year-old single man on £28,000 a year, was offered a £153,720 loan by Alliance and Leicester for a £180,847 property in London – a loan-to-income ratio of nearly five and half times his salary. This was with a hefty deposit of £27,127.

The monthly repayments on the four-year deal, fixed at 5.99 per cent, would be £989.48 a month out of a net income of £1,770.30 – some 56 per cent of his monthly income. It would leave the borrower just £780.82 a month to cover all living expenses and associated household costs.