Potential first-time buyers are taking an increasing number of financial risks in an attempt to get on to the property ladder.

The announcement comes as new figures released by LV= show that one in six (15 per cent) of adults under the age of 35 are willing to take on a mortgage worth at least four times their annual salary. Young buyers’ readiness to “borrow big” was again highlighted as five per cent of the under-35s are said to be prepared to opt for a deal worth more than five times their annual earnings. However, some 30 per cent of these consumers claim that they would forfeit taking out financial protection insurance for their secured loan deal to allow them to borrow the largest amount possible. Consequently, the financial services firm urged those buyers who plan on not paying for cover to consider how they would be able to make monthly mortgage payments should they unexpectedly become the victim of a long-term illness or injury which could cause them to be unable to work.

Nigel Snell, communications director for LV=, said: “Home-owning has long been a national passion and one which continues to cascade down the generations; but what concerns us is just how many younger buyers are prepared to stretch themselves well beyond traditional lending limits without arranging adequate financial protection. These were hypothetical responses and we fear that, under genuine pressure to realise their home-buying dreams, many more buyers will choose to walk the mortgage high wire without a financial safety net.”

However, Britons were said to impose limits on how much they were prepared to borrow for a mortgage. The financial services firm reported that 87 per cent of consumers would curb their borrowing to an amount which is no more than quadruple their salary. Meanwhile, some 58 per cent of borrowers claimed that three times their annual income was the most they were prepared to take out in a secured loan.

The study also revealed that borrowers from Northern Ireland are the most cautious throughout the country in terms of safeguarding their ability to make mortgage repayments. Some 44 per cent of consumers from the principality said that they would take income protection cover, with residents in East Anglia (38 per cent) and Yorkshire (32 per cent) also reported to be looking to secure their monthly expenditure. Conversely, people from the south-east of England were reported to be the least likely to take out insurance.

Meanwhile, 21 per cent of women claimed that they would rule out getting secured loan cover, in comparison to 27 per cent of men. Figures from LV= also indicated 11 per cent of females would opt for a mortgage above four times their salary, with this rising to 15 among the opposite sex. “A looser set of borrowing habits is taking root among younger generations of home-buyers. We understand the pressures and realities of today’s housing market, but we urge young families and individuals to think very carefully before deciding to omit financial protection from their home-buying process,” Mr Snell added.

Earlier this month, research conducted by Moore Blatch suggested that consumers are increasingly struggling with making mortgage repayments. The announcement comes as the firm suggests that as borrowers’ homes are being repossessed when they are unable to pay off secured loans, an equal number of Britons are selling off their property in an attempt to avoid increased financial difficulties in later life.

What To Know About Yourself In Advance

Your credit report: You must know how you stand and whether everything it contains is accurate and updated. If not, have it corrected. Next comes how much you want to spend on your new home, whether you need to make a down payment or not and as a consequence of that, how much you need to ask for.

Related to this point is the period of the loan, which determines the monthly payment, adjusted to your budget. This should be done before shopping for a loan, since you want to know what you need and therefore, what to ask the lender for. Then comes the part where you determine the adequate lender for you.

Taking Some Necessary Precautions

If you are a credit card holder and have several with an outstanding balance, you might want to pay off some and leave the essential ones, not more than three. This decreases the amount of debt you have, giving you a better credit rating.

Saving time is also a necessary precaution. Get your loan pre-approved first and THEN start shopping for a house.

What To Know About The Mortgage Loan

Well, the outstanding points are that a mortgage loan is of low risk to your lender, since it is backed by the property you are buying. On the other hand, you risk the loss of the property if you do not pay the loan. However, the payment terms are long, making the installments smaller and easier to pay, reducing the risk of default.

Find out the APR, what fees it includes and how it affects your monthly payments. Do not evaluate a loan only for the APR, which is not just the interest rate by itself.

And Now, The Lender

The loan you are looking for is a long term one, so if you make a bad deal, you will be sorry for a long time! Get free quotes before applying for real and when you do, ask for a copy of the contract to take home and read carefully. If you are denied this right or are urged to sign up, just be calm, say good-bye and look for another lender.

Last Considerations

As I have said above, lack of knowledge is no excuse for a bad deal. You have the obligation to find out what expenses there are and account for such items as closing fees, application fees, and everything NOT included in the APR. Escrow is another item to consider, since there might be a middle party connecting you to the seller.

Last but not least, there should be a life insurance and probably an additional mortgage insurance, to cover the payments in case of the borrower’s death and a payment default due to unexpected events, respectively. Leave no stone unturned. A little effort now will make all the difference in the world in the future.