200,000 households in 2006 had price-to-income mortgages greater than 6 to 1
October 29th, 2008200,000 HOUSEHOLDS in 2006 HAD PRICE-TO-INCOME MORTGAGES GREATER THAN 6 TO 1
The scale and depth of negative equity, and the recklessness of the mortgage lending generating it, are revealed in the latest figures from the Regulated Mortgage Survey and Council of Mortgage Lenders. They reveal that in 2006 no less than 201,078 households were granted a mortgage that year (18% of the total) with a price to income ratio greater than 6 to 1. Of these, 80,289 (7% of the total) were lent mortgages with ratios in excess of 8 to 1, and 37,937 (3.34% of the total) actually had ratios in excess of 10 to 1!
These are staggering figures. Not only do a third of all the 11 million households with a mortgage have a price to income ratio above 3 ½ which is widely regarded as the upper safe limit, but half that number of households have ratios over double the safe limit.
Nor was 2006 the worst year in terms of numbers of families over-extended with their mortgage commitments. In 2004 the figures were even higher. That year 309,170 households were granted mortgages (a stunning 25% of the total) in excess of the 6 to 1 price to income ratio, including mo less than 62,931 households (5% of the total) in excess of 10 to1.
It is clear from these figures that the extent of negative equity substantially exceeds that at the nadir of the 1990-1 recession, and that the depth of that negative equity is also much greater than ever before.
There are three immediate lessons. Measures to protect home-owners from repossession have to be a great deal tougher than those already announced by the Government, including the right to switch to tenancy status to preserve their home. Secondly, we need a public sector bank specialising in mortgage lending to low-income families to protect poorer applicants from commitments they are unlikely to be able to honour. And thirdly, we need much tighter rules governing all mortgage lenders restricting lending to levels much closer to the 3 ½ price to income safe limit unless there are exceptional circumstances.
