A paper due to be published by the FSA later in the year will consider various proposals to control the amount of lending for each borrower. Regulations may be introduced to limit the maximum loan to value and also limit maximum income multiples.

Whilst it would be hard to argue that all lenders have been prudent in their lending up to now, I’m not sure limiting salary multiples is the right way to go. Most lenders now use an income calculator which takes account of the number of adults and dependent children within a household. For example a married person with a non working spouse and 2 children has a significantly different disposable income to a single person on exactly the same salary.

Limiting a mortgage advance to eg 3 times salary will have a very different monthly cost when base rates are 0.5% as opposed to when base rates are 5%.

Lending needs to be prudent but salary multiples are too narrow a criteria to use. Maximum lending needs to be based on affordability.

This entry was posted on Thursday, March 19th, 2009 at 10:05 am and is filed under mortgages, property market general. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.