The Royal Bank of Scotland Group has become the second UK lender to clampdown on high income multiple loans, joining fellow state-backed lender Lloyds in applying a strict four times income multiple on Londoners seeking a mortgage over £500,000.
From Friday (6 June), the 81 per cent state-owned bank will be introducing a four times loan-to-income cap and maximum term of 30 years for all mortgage loans of more than £500,000. The policy will apply to both RBS and Natwest, and will begin with broker-initiated loans.
Natwest said this “change of policy is being introduced primarily to address the inflationary pressures being seen in London and will be applied in addition to the standard affordability assessment”.
The group said the move follows the safeguards it already has in place, such as reducing loan-to-values in larger loans. It adds it is particularly targeted at customers “interested in the upper end of the London market, where there has been the most inflationary pressure”.
An RBS spokesperson said: “We are focused on looking after the interests of our customers and ensuring that they only take on mortgage lending that they can afford.
“We are committed to helping first-time buyers and supporting the Help to Buy schemes as a step on to the housing ladder for those with small deposits and the ability to afford their mortgage repayments.”
Last month, Lloyds introduced the same measures and FTAdviser reported that pressure was beginning to tell on state-backed banks to heed warnings of the Bank of England, as RBS refused to deny it was following suit.
The move by the state-owned banks follow a growing clamour for action to curt housing market excesses. Three days prior to Lloyds’ announcement, Bank of England governor Mark Carney warned in an interview the Bank may itself cap income multiples to prevent a bubble.
In particular, he cited disproportionate growth in loans of more than four times income: such mortgages accounted for the “highest share of new home loans [and] are running at their highest level than at any time since 2005”.
Yesterday, the European Commission warned the government that it needs to rein in its Help to Buy scheme in an attempt to cool the housing market.
The EC called on the chancellor to “deploy appropriate measures”, including potentially increasing council tax, in a bid to control rising house prices, particularly in London.
The scheme has come under much criticism recently and has been blamed for pushing annual house price growth to double digits. Indeed figures yesterday published by Nationwide revealed house prices are still climbing and are now 11.1 per cent higher than May 2013.
This is despite recent data published by the Bank of England which showed that mortgage approvals fell for the third consecutive month in April. The data showed a drop to a nine-month low of 62,918, down 3,645 on the previous month.
While attention is focused on the controversial Help to Buy support scheme, Nationwide said it is unlikely to be the main factor in the property price boom as it only accounted for 9 per cent of total mortgage completions in the first three months of the year, echoing recent Treasury claims.
Robert Gardner, Nationwide’s chief economist, said that the slowdown in approvals may be “partly” the result of the introduction of Mortgage Market Review measures, “which may take a few months to bed down”.
However, he added that underlying demand for housing - and therefore price inflation - was likely to continue despite the MMR, as a result of the improving economy.
.
