Millions of young people looking to get on to the property ladder are aiming to take out a mortgage worth more than four times their annual salary, it has been suggested.
Figures released today by mform indicated that some 2.08 million Britons under the age of 35 will look to take out a secured loan that is at least quadruple their yearly pay. Meanwhile, 828,000 of these consumers aim to have a loan at five times their income with over a quarter of a million (250,000) planning on borrowing six times over.
Spokesperson Francis Ghiloni said: "As property prices continue to rise and wage inflation fails to keep in line with this, many young people looking to get on to the property ladder will have to take on huge debt. Many will have interest-only mortgages because they will not be able to afford to repay the capital they have borrowed and they will be heavily exposed to any falls in property prices and increases in interest rates." Mr Ghiloni added that just over a third (36 per cent) of under-24s who wish to take out a mortgage within the next three years are claiming that they will have to borrow at four times their salary.
Overall, 3.7 million people are looking to take out a secured loan worth more than four times their annual salary between now and 2010 with just over half (56 per cent) of these said to be 34 or under. Figures from the financial services firm also indicated that those aged between 25 and 34 are the age group that most prioritises taking out a mortgage as some 54 per cent are said to wish to do so within the next three years.
Meanwhile, those who are 55 and above are the least likely to want to take out a mortgage, with only seven per cent of people in this age group having such plans. According to mform, some 4.5 million people are intent on borrowing between three and four times their annual pay when taking out their next mortgage.
Earlier this week, figures released by the Council of Mortgage Lenders (CML) indicated that consumers are currently taking out a record amount of money via secured loans. Over the course of May, first-time buyers were said to be opting to borrow at 3.37 times their average annual income. Meanwhile, monthly mortgage repayments were also said to have peaked at 19.1 per cent - the highest level noted since 1992 and a rise from the 18.7 per cent recorded during April.
Commenting on the CML study, Vince Cable, shadow chancellor for the Liberal Democrats, argued that "this data confirms that affordability is deteriorating and that the average ratio of loans to earnings is way in excess of what the banks traditionally regarded as a safe maximum". He claimed that if the British economy continues to grow then most borrowers "should be able to cope" with the subsequent rise in repayments. However, he warned that should the country's financial outlook decline then first-time buyers could be "desperately exposed".
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