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FSA steps into mortgage multiple debate

The Financial Services Authority (FSA) has this evening stepped into the debate regarding mortgages and the relationship with incomes. Homebuyers may well see their mortgage applications limited according to their income in a move to reduce the inflated risks we have seen over the last few years.

Figures released by the FSA indicate that the loan to income multiple has risen from 2.5 times to 3.2 times over the last decade. However, more alarming is the revelation that in boom property markets some of the more aggressive lenders have been agreeing mortgages based upon six or even eight times a customer's income. As a consequence we have seen mortgage interest payments as a percentage of total income increase from 11.5% in 2002 to a substantial 18.5% last year. The situation could worsen as incomes reduced across the UK in the short to medium term.

While this move does make sense on a long-term view, there are concerns that the more limits and regulations added to UK financial markets the more chance that many of the sector leaders will look overseas. Much of the attraction of the UK market is based upon the "free-market policy" introduced by the Tory party and since rubberstamped by the Labour government. If this were to disappear this could prompt a substantial change in the UK financial sector landscape.

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