Dangerous loans on offer

5 April 2012

First-time buyers are being encouraged to borrow up to eight times their salary amid 'dangerous' moves to fuel house sales.

The plan emerged as estate agents warned that a collapse in the number of young buyers is sucking the life out of the market.

Bank of Ireland Mortgages launched the scheme - called 1st Start - this week.

Under the deal, a young woman earning £25,000, for example, could be allowed to borrow as much as £205,000.

The scheme works on the basis that she would take out a joint loan with her parents.

The calculation is made by taking the parents' income, minus their annual mortgage repayments, and multifplying it by four.

In the example above, if a father's income was £50,000 and he had mortgage repayments of £5,000 you would multiply £45,000 by four to get £180,000

The first-time buyer's salary of £25,000 is then added.

The parents would be expected to make a monthly contribution to the mortgage repayments, although this is not a requirement.

They would also be expected to take on the debt if their child did not make repayments.

The new mortgage - a first in the UK - will be available through mortgage brokers throughout the country. The scheme has been condemned by credit counselling experts, who fear two families could be saddled with big debts.

It also flies in the face of warnings from the City watchdog, the Financial Services Authority, MPs and others about a mounting personaldebt crisis.

But the loan has the backing of estate agents, who say it will breathe life into the market.

A survey published by the National Association of Estate Agents today claims the percentage of sales going to young buyers fell to an all-time low last month of 13 per cent.

Its president, Melfyn Williams, said: 'The acute shortage of first-time buyers is threatening to log-jam sales in progress higher up the value chain.

'Lenders are being over cautious with the multiples of income they are willing to lend on - especially for fixedrate deals where there is no

BOIM managing director Roland McCormack said the scheme offers parents an alternative to giving their children a lump-sum deposit.

He said the scheme would be particularly useful in London and the South East, where the price of a first home has soared beyond reach for many.

But he added: 'Young people in other regions might find they can get a bigger property than they originally expected.'

The loan is available for up to 95 per cent of a property value.

There is a two-year discount at 3.89 per cent, a three-year fixed-rate at 4.89 per cent, and a five-year fixed-rate at 5.29 per cent.

The property can be owned solely by the child or jointly by the child and the parent. The Consumer Credit Counselling-Service questioned takingon such huge debts. A spokesman said: 'Given that the housing market is known for instability, this seems a dangerous level of debt to get into.