MortgagesMay 21 2014

Lloyds imposes lending limit in wake of Carney warning

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Lloyds Banking Group has launched a crackdown on high value mortgage lending by applying a strict four times income multiple on Londoners applying for a mortgage over £500,000, in the wake of a Bank of England warning that it may intervene to limit high multiple loans.

Lloyds described the limitation as “a targeted policy change primarily designed to address specific inflationary pressures in the London housing market”.

The new policy will be applied in addition to its new affordability assessments under the Mortgage Market Review, the lender added. It will take effect immediately and applies to mortgage lending through Halifax, Lloyds Bank, Bank of Scotland and Scottish Widows Bank.

Recent data from Nationwide revealed property prices have grown 10.9 per cent in the 12 months to April. According to Land Registry data the average property price in London was £409,881 in January 2014, well above the next highest region, the south-east, where it was £223,128.

According to Stephen Noakes, Lloyds’ group director of mortgages, London house prices are now almost 30 per cent above the 2007 peak. He cited a supply lack which is “particularly acute in London”, saying this is “having an impact on income multiples which are failing to keep pace with asset growth”.

Mortgage brokers have been vocal on the subject in recent months following a spate of warnings on the housing market, saying the level of inflation seen in the capital is pushing up the national average but does not represent the picture in other parts of the country.

Mr Noakes said: “We’re not seeing such issues across the rest of the UK and therefore this is a targeted response to an issue largely in the upper tiers of the London housing market. This prudent update to our lending policies is intended to manage risks to our business and for our customers.”

The new policy comes two days after the Bank of England governor warning that people could be stopped taking out mortgages worth many times their salary to buy new homes.

In a televised interview on the weekend, Mark Carney said that capping the size of mortgage ratios to salaries was one measure the bank was considering to control rising house prices, as he cited disproportionate growth in loans of more than four times income.

The Bank is also keeping an eye on the government’s Help to Buy scheme following reports the scheme is fuelling house prices.

The warning comes after the bank disclosed in March that mortgages larger than four times borrowers’ incomes accounted for the “highest share of new home loans are running at their highest level than at any time since 2005”.

Mr Carney suggested in the interview that the bank could impose a new “affordability test” for borrowers as well as reining in the government’s Help to Buy scheme which provides taxpayer-backed guarantees for homebuyers.

Previously, three former chancellors of the Exchequer - Lord Lawson, Lord Lamont and Alistair Darling – warned the second phase of the Help to Buy scheme, which guarantees very high loan-to-value mortgages, has the “potential to inflate a future housing bubble”.

The second phase of the scheme, which opened early in October last year, guarantees a portion of mortgage losses for lenders that offer mortgages up to 95 per cent loan to value.

Mr Noakes dismissed that Help to Buy was behind the inflation, saying: “The group continues to support the Help to Buy mortgage guarantee scheme as it has raised confidence in the housing market particularly outside of London. Help to Buy is not one of the factors driving London house prices.

“Just 2 per cent of purchases in London in 2014 have been through the scheme with the significant majority of applications coming from the rest of the UK.”