Needy mid-ranking bankers who can't afford to live in London could be big users of Help to Buy

Pity the mid-ranking banker on an income of less than £500k ($800k) - he (or she) often can't afford to buy a house in London. And if he/she does have a house in London, an increasing proportion of his income is eaten up by mortgage payments.

"Our mid-ranking people are struggling," said the head of HR at one British bank, speaking on condition of anonymity. "They're in a difficult position - they've got families and are targeting a specific lifestyle which is increasingly unaffordable for them. They're quite vocal about it, especially at compensation time - if you're earning less than £500k, it's very difficult to buy a house in central London and to pay school fees for several children."

While the U.S. housing market plummeted and is mounting a nascent recovery, the UK housing bubble never really popped. As the Economist pointed out last month, the average house price-to-earnings ratio in London remains far above historic norms. The UK government stands accused of pushing prices even higher still through its controversial Help to Buy Scheme - launched today, under which it will underwrite £130bn of mortgages over the next three years.

"People here are already carrying a lot more debt than they used to," said a senior manager at one European investment bank in London - again speaking off the record. "A member of my team has a £750k mortgage on his house, which is a huge burden for him. A lot of other mid-ranking people here can't afford to live in Zone 1 and are having to move out to Zones 3 or 4 - which is difficult when you're a VP-level banker working very long hours."

As for other Londoners, the crunch point reportedly comes when bankers hit their early 30s and start having families. Until then, they're happy to live in house shares or small flats conveniently situated in central London. Once they have families, they need larger London properties and aspire to pay private school fees. "People suddenly see their disposable income pared down considerably," said the European banker. Traditionally, the head of HR says senior bankers would have moved their wives and children into the cheaper British countryside and bought themselves a weekday pied-a-terre so that they could live in London. Now, however, she suggests that bankers' wives often have jobs of their own and want to continue living in the city - even if they're not contributing much towards the cost of doing so.

It doesn't help that bankers took on large mortgages several years ago in the expectation that their pay would keep rising. "My guy who borrowed £750k has seen his compensation coming down year-after-year. It's very hard for him - he's spending a significant proportion of his income servicing that debt," said the senior banker we spoke to.

Sandy Chen, a banking researcher at Cenkos, said financial services professionals could be among the more enthusiastic users of the government's new Help to Buy Scheme. The scheme places no ceiling on the incomes of people who can use it, and allows borrowers to take out 95% loan-to-value mortgages on properties worth up to £600k. Mortgages offered under the scheme are currently available at fixed rates of 4.99% to 5.49%. Although this makes them among the more costly mortgages on offer in the UK market, individuals using the government scheme will be able to leverage themselves up and take out larger loans.

"If you're thinking about taking out a mortgage under Help to Buy, it's really a question of whether you want to go from a 75% loan-to-value mortgage to a 95% loan-to-value mortgage," says Chen. "There are a lot of speculative types among bankers, so you'd expect this will be very popular with them."