Aldermore Bank has become the latest mortgage provider to impose a cap on loan-to-income multiples for residential mortgages, following instructions from the Bank of England in June that lenders should limit their lending above 4.5x earnings.
The bank stated that “in response to the recent announcement by the Bank of England’s Financial Policy Committee” loans above 85 per cent LTV, including those backed by the Help to Buy mortgage guarantee, must be less than 4.5x income. Up to 85 per cent LTV must be less than 5 times income.
The cap is identical to that imposed by Santander last month, and follows similar moves by state-owned banks Lloyds Banking Group and Royal Bank of Scotland, and Nationwide.
Aldermore’s loan to income limit applies to all new business submitted from 28 July, but Buy to Let products are not impacted by the change. It added that the primary assessment was carried out on an affordability basis.
It said: “The introduction of loan to income limits will continue to ensure that our borrowers do not over extend themselves when entering into a mortgage with us.”
The moves come in the wake of warnings earlier this year from BoE governor Mark Carney, who warned that the central bank may itself cap income multiples to prevent a bubble.
In particular, he cited disproportionate growth in loans of more than four times income, pointing out that such mortgages accounted for the “highest share of new home loans [and] are running at their highest level than at any time since 2005”.
In June, the Financial Policy Committee published a report which said regulators should ensure lenders are not able to hold more than 15 per cent of its mortgage book at an income multiple above 4.5x.
