Virgin Money has tweaked its affordability policy, including the introduction of a maximum loan-to-income cap of four times for loans over £500,000.
A note to brokers explained this was based on the lender’s usual allowable types of income and it only expects the change to impact a “very small proportion of our lending”, believed to be less than 1 per cent.
A statement from Virgin Money read: “We have listened to feedback from our intermediary partners and made a number of changes to the way we assess affordability and calculate the loan amount we offer to customers for residential mortgage applications.
“The changes mean we will better meet customer needs in terms of the borrowing amount they require, while continuing to lend in a safe and responsible way and without compromising credit quality.”
The changes apply immediately to its affordability calculator and any decisions in principle.
It will also now consider clients with levels of disposable income of more than £40,000 when making affordability calculations.
For Help to Buy, Virgin Money will now calculate government fees as part of borrowers’ monthly financial commitments at 3 per cent of the equity loan, compared with 4 per cent previously.
Last January, Barclays announced all its mortgage lending would adhere to a maximum of 4.5 times LTI, following from guidance issued by the Prudential Regulation Authority in October 2014.
From the lenders FTAdviser spoke to at the time, only Natwest Intermediary Solutions did not have LTI ratios on residential mortgages under £500,000. For loans of more than £500,000 it had a four times LTI and maximum term of 30 years.
Adviser View
Ray Boulger, senior technical manager at John Charcol, explained that in the details about criteria improvements issued to brokers, Virgin Money said that for clients with an income above £40,000 it would take into consideration their higher levels of disposable income when assessing affordability, something which “completely contradicts the imposition of a four-times income cap”.
He suggested that the move undoubtedly results from the Bank of England’s restriction of lending in excess of 4.5 times income to a maximum 15 per cent in any one quarter.
“By imposing this limit on a small number of large loans it leaves Virgin more flexibility to offer multiples in excess of 4.5 times on more smaller loans.
“Lenders are now changing their maximum income multiple, although often only on loans of a certain LTV or size, quite frequently in order to make sure they don’t breech the Bank of England cap.”
peter.walker@ft.com
