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Last Updated: Wednesday, 14 June 2006, 09:49 GMT 10:49 UK
Home buyers stretch cash limits
Browsing an estate agent's window
Buyers are stretching their finances even more
Home buyers have been stretching their finances to record levels in order to take on new mortgages, a survey says.

Figures from the Council for Mortgage Lenders (CML) show that in April first-time buyers borrowed on average 3.21 times their incomes to get a loan.

That was greater than the previous highest multiple set in October 2004.

For all home buyers together, average loans were 3.04 times their incomes, which equalled the current record multiple set in the autumn of 2004.

Fixed-rates helping

With house prices going thorough a renewed spurt this spring, home buyers, especially first timers, have been forced to borrow ever increasing amounts of money.

But the CML's director general Michael Coogan played down worries that borrowers were becoming overstretched.

"It is interesting to see that while both first-time buyers and movers are borrowing a greater multiple of their income to get a mortgage, their payments as a proportion of income are lower than in the same period last year.

"This is potentially due to the higher take-up of attractive fixed-rate products over the past year."

Flexible limits

Traditionally, lenders have tried to restrict their lending to three times a single person's income or 2.5 times the combined earnings of a couple.

The aim has been to make sure they do not borrow too much and then find the repayments were unaffordable.

In reality these apparent limits are often exceeded if lenders are particularly keen to lend money or if they are confident that the borrowers will soon be earning a bigger salary.

The CML's monthly survey showed that in April, fixed-rate deals made up 71% of mortgages for either house purchase or a re-mortgage, 17% more than in April last year.

It suggested that this was a result of borrowers being keen to lock themselves in to attractive deals at low rates of interest, thus protecting themselves if interest rates move higher in the short term.


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