Lessons From The Future: Mortgage Leverage

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It’s already happened in the US, and it’s likely to spread to the UK. Allowing mortgage multiples of up to 10x salary goes completely over the top of the old “rules” that dictate a multiple of 3/3.5 times. As banks are tightening their lending criteria already, the damage is likely to be done to the market.

Increases in interest rates from the Bank of England, or mortgages moving off fixed rate periods will cause major pain for many home owners who took advantage of extraordinarily lax lending criteria.

The effect will be harsh on the home owners who will struggle to refinance these mortgages in the future, leaving them with only two options: stick with what could be extremely high interest payments or sell up and move to somewhere more affordable. Of course if house prices fall they won’t want to to the latter unless forced. Interesting times indeed.

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