Contrary to popular belief, lenders are not unduly relaxing their credit standards, according to a new study by the Council of Mortgage Lenders (CML).
The research found that the number of borrowers judged to be over-stretching themselves through high income multiples or high percentage loans has not increased for almost a decade.
The number of borrowers who took out a mortgage loan for the full value of the property or more was around 25% of new loans in the late 1980s. This dropped sharply in the 90s and has remained constant at between 4% to 5% ever since.
In addition, while the average income multiples have risen to around 2.25% there has been a negligible increase in the number of borrowers requiring four times income or higher.
It is thought that risk assessment techniques have become more sophisticated with income multiples seemingly recognised as a clumsy indicator of credit worthiness. Jennifer Stoddart, senior press officer at Nationwide, said: ‘We now base all our assessments on affordability models which look at the income and the out-goings and show what is left to pay the mortgage, although a number of lenders still use income multiples.’
However, the CML warns lenders to rebe vigilant to ensure that borrowers do not get into difficulties using new products such as flexible mortgages as a way to increase their borrowing.