Home owners 'stretched', exposed to interest rate rise

25 May 2006
Many first-time buyers have stretching themselves to the limit of their finances to afford a foothold on the property ladder, leaving them exposed if interest rates rise, according to financial advice site Moneywise.

The online adviser notes that mortgage lenders are aware of the risk so are cutting back on amounts they lend above and beyond the basic rate. This equates to around three and a half times the main earner's salary plus any second earner's salary, or two and a half times the home buyers' joint salaries, whichever is greater.

"Many home buyers have stretched themselves to the limit, so could struggle if rates rose," said the editor of Moneywise, Emma-Lou Montgomery.

"The majority could no doubt stomach a small rate rise without too much difficulty," she continued, "but if rates were to keep going up that would undoubtedly put the brakes on the housing market.

"[People would] make sure they can afford mortgage repayments before burdening themselves with debt that they are not going to be able to repay."

According to a recent report by the Council of Mortgage Lenders, loans for home buyers rose to a record £25.1 billion in April, a 16 per cent year-on-year rise on last year.

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