How to get a foot on a slippery ladder

Anyone worried about how to get on the property ladder may be relieved to hear that lenders are now offering mortgages of up to six times buyers' incomes.

Anyone worrying about how they'll ever get on the property ladder can officially relax. Lenders are now handing first-time buyers loans of up to six times their income. Apparently, Alliance & Leicester, Royal Bank of Scotland and Northern Rock are among the banks that will lend suitable customers such heady income multiples, reports The Daily Telegraph.

I was particularly interested in the comment from Alliance & Leicester's spokesperson, who says: "The most generous lending will tend to be to dual-income couples with little or no debt and no children."

This seems to make sense at first after all, who has more disposable income than a childless double-income couple? But in fact, these are the last people who should be borrowing to the hilt to buy a house because the reality is they're also the very people whose household income is far more likely to fall in the future, rather than rise. Firstly, there's the obvious risk that one or other partner will lose their job. If you only rely on one income to keep a roof over your head, then even if the main breadwinner falls ill, or is made redundant, the other partner can pick up the slack. With two incomes needed to support your monthly mortgage payment, there's no fallback position.

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Then there's the issue of children. How many childless couples actually plan to stay that way for the 25 years or so of the typical mortgage term? Not that many, I'd bet. As anyone with children knows, wonderful though they are, they're remarkably efficient at mopping up any stray pennies that happen to be lying around the household coffers. Even if both parents return to work after the baby is born, that entails paying for costly childcare. So once again, that six times income multiple looks insupportable.

On top of all this, it seems rising property prices are driving the cost of having children even higher. An Office for National Statistics study says that the number of 20-24 year-olds still living with their parents in 2006 was up 8% on 1991. Case study after case study trots out complaints of expensive housing forcing these "boomerang kids" to return home after they graduate.

It may seem harsh, but I can't help but feel a lot of these graduates are just too comfortable at home. One 24-year-old complains that renting in London is too expensive, but then says he's hoping to buy a flat with a friend. Why not just rent with a friend, like most other single 20-something Londoners? And since when did people in their 20s become so interested in taking out mortgages? It seems the national obsession with buying property, regardless of cost, has infected our youth. Perhaps more financial education in schools would help something my colleague Merryn Somerset Webb has written widely about.

If you've got a boomerang kid cluttering up your house, a good start would be to sign them up to Merryn's weekly personal finance email, Money Sense click here to sign up for MoneySense now.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.