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Last Updated: Wednesday, 1 November 2006, 14:32 GMT
Five-times-salary mortgage offer
Abbey branch
Other lenders are expected to follow suit
Abbey, Britain's second largest home loan provider, is offering borrowers five times their salary in order to help them get onto the property ladder.

The bank is making the offer available to individuals or couples with a deposit of about 25% and an annual income of 60,000 or more.

Abbey said it was reacting to surging house prices.

But a leading credit counsellor warned that borrowing on this scale meant buyers could be "very stretched".

An interest rate rise is also expected in the near future.

Encourage

In recent years there has been a clear trend towards higher multiples, in some cases as much as 7.5 times annual salary

A couple borrowing 250,000 would face repayments of about 1,400 a month - 17,000 a year.

However, only borrowers with good credit ratings and low debt levels would qualify, Abbey said.

"Our customers are continually asking for more money to purchase the house they want and subsequently we looked into the affordability ratings of certain people," said Abbey spokesman Dave Stewart.

"We found that people could afford to pay out for bigger mortgages but there just wasn't anything on the market at the moment offering them what they needed."

HAVE YOUR SAY
This only serves to drive up house prices even more
G M, R, United Kingdom

The current industry standard is for homebuyers to be offered mortgages of up to three-and-a-half times their salary.

Analysts say Abbey's move is likely to encourage other lenders to follow suit, as they fight for the business of would-be homeowners.

Last week, Bank of Ireland Mortgages and Bristol & West increased their standard salary multiple allowances from 4 to 4.5.

The Bank of England is strongly tipped to raise interest rates by 0.25 percentage points to 5% next week.

The chief executive of the Consumer Credit Counselling Service, Malcolm Hurlston, told the BBC that Abbey's announcement was risky news for borrowers.

"For some people this is going to look like an answer to their prayers but it risks taking them into dangerous territory," he said.

"If their salaries do not go up in the way they think, then they are going to be very stretched."

However, Ray Boulger, senior technical manager at independent mortgage brokers John Charcol, said it was possible to get similar incremental loans from other lenders.

"There is a responsibility on the borrower," he told BBC Radio Five Live.

"There will be some who feel perfectly comfortable borrowing that amount of money because they have a lifestyle which means they can afford it.

"However, there are others who prefer to spend more on luxuries and for who it is not suitable."

Prices and wages




VIDEO AND AUDIO NEWS
Ricky Okey, Managing Director of Abbey Mortgages



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