Affordability solution for homes

Consumers may now be able to borrow larger mortgages with the introduction of affordability mortgages at several banks.

11:19 19 September 2005

Consumers may now be able to borrow larger mortgages with the introduction of affordability mortgages at several banks.

The affordability mortgage calculates the maximum loan offered based on a person's disposable income, meaning that someone who is child- and debt-free would normally be able to take out a larger mortgage than under the income-multiple calculation.

The typical mortgage is calculated via a multiplication of a person's income, typically by a factor of three or four for single people. However, Sally Lauder from Alliance and Leicester, which is now offering the affordability mortgage, described this as a "crude" means to calculate the home loan an individual could afford.

Simon Tyler from Chase De Vere Mortgage Management echoed this statement: "Affordability lending is far more flexible than strict multiplesEssentially, the more disposable income you have each month and the bigger your deposit, the more you can borrow," he told the Guardian.

It is hoped that the affordability mortgage will help first-time buyers struggling to get on the housing ladder due to the discrepancy between earnings and house prices. A single 25-year old in south-west London earning an income of 25,00 would be able to borrow 123,000 under the new system, compared to 93,000 based on their income-multiple alone.

However, experts warn that people with large debt repayments or children may not benefit from the new calculation and those on low incomes are advised to shop around for the best income-multiple offer. The affordability calculation is also based on post code, meaning that those in expensive cities, such as London, are restricted to smaller loans.

Reports have frequently warned that rising house prices, compared to relatively stable salaries, mean that first-time buyers are priced out of the market in many areas. Figures for Wales recently revealed that the average house for a young family costs almost four times more than local household earnings.