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Halifax report shows need for caution over highly-leveraged first time buyers

Blog post by Andrew Teacher

Most people would agree it’s a positive thing that the property market is moving again. Indeed, construction chiefs are particularly rejoicing given the resurgence of their industry. But there has to be some caution over the numbers of people reverting to 90 percent loan-to-value mortgages, as reported in today’s Halifax story.

Worryingly, the Halifax economist interviewed on Radio 4’s Today Programme didn’t think this high degree of leverage among the vast majority of first-time buyers was a problem. When asked by the BBC’s Simon Jack, he replied no, saying that we had record low interest rates. We do, but we won’t forever.

While the government’s Help to Buy scheme has been broadly positive for the housebuilding sector, in real terms, it hasn’t actually helped that many individuals. But the question we need to answer is this: should we be lulling buyers into a false sense of security by encouraging them into huge mortgage debts when interest rates can only go one way?

One key take away from today’s Halifax data – which of course only represents a small portion of the mortgage market – is that mortgages as a proportion of total earnings have fallen from a half to below a third of salaries. This means that, provided people’s earnings increase, they could potentially absorb any increase in mortgage costs driven by rate rises.

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