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Last Updated: Tuesday, 12 December 2006, 13:18 GMT
First-time buyers stretched again
Abbey headquarters
The Abbey recently offered to lend at 5 times a borrower's salary
The financial strain of buying a home is becoming even greater, according to the Council of Mortgage Lenders (CML).

In October, first-time buyers had to borrow a record 3.27 times their incomes to take out a mortgage.

And people moving house had to borrow at near-record multiples of 2.98 times their incomes, the CML said.

Recently, some lenders have said they could lend as much as five times salary to some borrowers, to cope with rapidly rising house prices.

"It is a reflection of the growing affordability problem of first time buyers," said Bernard Clarke of the CML. "But it is offset by lower borrowing costs."

Changing approach

Once upon a time, it was standard practice in the mortgage industry to lend, at most, 3.5 times a single person's salary or 2.5 times the combined salary of a couple, on top of a deposit of at least 5% of the property price.

Increasingly lenders have started to take a more sophisticated approach and have been prepared to lend more to borrowers as a result.

Banks and building societies look at each customer's ability to pay by examining factors such as their disposable income and their credit score.

The outcome, according to Darren Cook of Moneyfacts, is that more people can now borrow larger amounts than before.

"We are going to see more lenders taking this approach," he said.

Among the big lenders both the Abbey and the Co-op bank have advertised mortgage deals at up to 5 times a borrower's salary.

Booming prices

Despite this, rapidly rising prices have forced out many would-be home buyers, with others having to stretch themselves financially or borrow from friends and relatives to put down a large deposit.

The house price boom of the past decade has seen property prices rising twice as fast as incomes.

In five of the six years between 1997 and 2002 the number of first time buyers was well over 500,000 per year.

But in 2003, 2004 and 2005 their number has averaged just 365,000 a year, amounting to just under a third of all new mortgages.

By contrast, 10 years ago, first time buyers made up nearly 50% of the home loan market.

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