Mortgage lenders have so far not responded to Barclays taking the lead on implementing a lending limit of 4.5 times loan-to-income on all mortgages, despite the Prudential Regulation Authority stating just 85 per cent of lending needs to fall under this cap.
Barclays’ previous maximum was 5.5 times income and the move was apparently part of an ongoing review of business planning.
The bank explained that existing borrowers coming to the end of a time-limited mortgage rate deal, and whose mortgages are above a newly-applied blanket earnings cap, will be allowed to switch to a new rate without the full might of the affordability requirements under transitional rules within the Mortgage Market Review.
From the lenders FTAdviser spoke to only Natwest Intermediary Solutions does not have loan to income ratios on residential mortgages under £500,000. For loans of more than £500,000 it has a four times LTI and maximum term of 30 years.
Nationwide Building Society has an income multiple cap of 4.75 times loan-to-income for all residential lending and a spokesman confirmed there are no plans to change that.
Metro Bank stated that it generally lends up to a maximum of 4.5 times a customer’s income, although the manual underwriting process allows it to consider each customer’s situation individually.
A spokesman for Metro Bank said: “Affordability has always been a large part of our mortgage process and that’s why we fully assess all aspects of a customer’s income and expenditure when considering affordability for a mortgage.
“We recognise that customers’ personal circumstances are unique and we therefore underwrite mortgage applications on a case-by-case basis.”
Both Virgin Money and HSBC refused to disclose what their maximum loan to income ratio is, stating that mortgage applications are assessed on a variety of factors including the customer’s individual circumstances.
A spokesman for HSBC said: “Each application is assessed on an individual basis and it’s rare for income multiples to be the deciding factor - first and foremost will be the affordability for the customer.”
The spokesperson added that the bank had no plans to change mortgage lending criteria.
Martin Richardson, Leeds Building Society’s general manager for business development, said: “We assess all mortgage applications based on affordability and our affordability model is well-established, having been introduced before the new MMR rules came into force last year.
“We use a backstop loan to income cap of 5x and this is reviewed on a regular basis.”
In October, the Bank of England published its LTI guidance, agreeing with the PRA’s recommendation that lenders must ensure higher loan-to-income multiples of 4.5 times do not make up more than 15 per cent of their mortgage book.
peter.walker@ft.com
