I’M A MORTGAGE BROKER – HERE’S WHY I WOULDN’T ADVISE BORROWING 6 TIMES YOUR INCOME

The past few years in the mortgage and property markets have been among the most tumultuous we’ve seen since 2008. The terms “interest rate shock,” “gilt yields,” and “cost of living crisis” have found their way into the lexicon. But what do these abstract terms look like in real life?

Last month, I sat across from a young couple who’d stretched themselves to the maximum to buy their first home in 2020, before Covid-19, when mortgage rates were much lower. They’d borrowed up to the cap at the time, which was 4.75 times their joint income.

With rates rising, their monthly payments have jumped by £460. They have good incomes, but now they also have another mouth to feed and childcare to pay for. Not to mention the car finance, along with the loan they got to refurbish the kitchen.

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Yes, their incomes have risen, but not nearly as fast as their outgoings, and now it’s remortgage time. One phrase he said during our meeting sticks in my mind: “thank god we weren’t able to borrow more than we did”.

I can tell you from experience that if they’d been able to borrow more back in 2020, they almost certainly would. They were child-free, debt-free, and rates were low.

As a broker with over a decade of experience in this industry, I’ve had more of these types of conversations in the past year than I’ve had in the preceding decade. Yet we’re about to add fuel to the fire.

While mortgages that allow people to borrow six times their income are being touted as the solution to our housing crisis – Nationwide extended their scheme last week – they’re actually a ticking time bomb that threatens both individual borrowers and our entire housing market.

The individual risk is enormous

When lenders offer these mortgages, the numbers are crunched and we’re assured the risk is acceptable – but passing a computer model isn’t real life. Take someone earning £50,000: a six times salary mortgage means borrowing £300,000. At 4.5 per cent, that’s a £1,520 mortgage payment based on a 30-year term.

When you allow for student loans and pension contributions, we’re talking about 50 per cent of someone’s take-home income alone just to pay the mortgage.

If rates approach 6 per cent at remortgage time due to more “unexpected events,” try £1,785. That’s almost 60 per cent of take-home pay on the mortgage alone before other bills. I’m not sure anyone should be working solely to pay a mortgage.

But rates aren’t the only risk. I’ve seen redundancies, divorces, illnesses, and deaths – life happens. With six times leverage, there’s zero buffer. If prices drop, you can’t downsize when you’re already in negative equity.

Miss a few payments and you’re not just losing a house; you’re facing bankruptcy. At traditional three to four times multiples, people had wiggle room. At six times, you’re walking a tightrope without a safety net.

The fallacy of composition trap

It seems politicians and desperate buyers often fail to understand one cognitive bias: this is a textbook example of the fallacy of composition. What works for one person catastrophically fails when everyone does it.

Consider this: if I’m the only person who can borrow six times, I can outbid others and get a house. But when everyone can borrow six times instead of 4.5? Prices simply inflate. We’re not solving affordability – we’re moving the goalposts and making it worse.

It’s like standing on tiptoes at a concert. The first person gets a better view. When everyone does it, nobody sees better, but everyone’s feet hurt. Except with six times mortgages, the pain lasts 30 years.

Each buyer stretching to six times forces the next buyer to stretch further, creating a vicious cycle where the same terraced house that cost £200,000 now costs £266,000, but nobody’s actually better off.

Systemic danger to our market

This isn’t scaremongering – we’ve been here before. Pre-2008, Northern Rock was lending six times income combined with 125 per cent loan-to-value – meaning they were lending more than the value of the homes people were buying. We know how that ended. When lending multiples detach from economic reality, corrections become crashes.

If unemployment rises or rates stay elevated, defaults are inevitable.

Maybe that’s been factored into the lenders’ model; I would assume it has, but do these mortgage holders know that the potential destruction of their wellbeing is an acceptable risk floating amongst all the other reams of statistics?

The bigger issue, however, is that the banks holding these mortgages could face enormous losses. Who bails them out? The same taxpayers who couldn’t afford houses in the first place. It’s privatised profits and socialised losses, version 2.0.

There are better ways forward

I understand the desperation. Half of my job is spent talking to first-time buyers priced out of their hometowns. But six times mortgages aren’t the answer – they’re pouring petrol on the fire.

Real solutions do exist: build council houses again, tax long-term vacant properties until their eyes bleed, and much longer-term fixed rates to provide certainty against rate shock. Most importantly, we need government action on housing supply, not just higher leverage.

My job is to find mortgages that improve lives, not destroy them. Individual “solutions” that worsen our collective problem aren’t solutions at all. Before you stretch to six times, remember: short-term gain isn’t worth long-term pain.

2025-07-24T05:34:04Z