Mortgages  

Barclays limits loans to 4.5 times incomes

Barclays limits loans to 4.5 times incomes

Barclays has announced all its mortgage lending will adhere to a maximum of 4.5 times loan-to-income, with immediate effect, following from guidance issued by the Prudential Regulation Authority last year.

A statement to brokers explained that any cases submitted which are greater than 4.5 times income will be declined at underwriting.

Barclays’ previous maximum was 5.5 times income.

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Any cases submitted before 21 January will be processed under the previous criteria, but applications after this date will have to be resubmitted.

The statement to brokers said: “With immediate effect, we are simplifying our LTI criteria capping the maximum LTI at 4.5 across all LTVs,” it read.

A spokesman for Barclays added that nothing in particular drove the move, but that this was something that the bank reviews as part of on-going business planning.

In October, the Bank of England published its LTI guidance, which revealed that it agreed with the PRA’s recommendations that lenders must ensure that higher loan-to-income multiples of 4.5 times do not make up more than 15 per cent of their mortgage book.

However, smaller lenders that advance less than 300 mortgages a year or that engage in mortgage lending worth less than £100m will not have to comply with the new earnings multiple cap that is being applied across the market.

In response to a public consultation, which closed at the end of August, the PRA stated that firm could allocate any part of the allowance to members of its group, but must ensure that the overall proportion of this higher value lending remains within the limit.

On 26 June the FPC published a report recommending that regulators ensure mortgage lenders limit the amount of their customers that are able to take out a mortgage at more than 4.5 times their income, adding that no more than 15 per cent of a lender’s book can account for such high loan-to-income multiples.

Ray Boulger, senior technical manager at independent mortgage broker John Charcol, told FTAdviser that quite a few lenders have done similar things since the PRA made its recommendation.

He said: “Brokers might have to go somewhere else, which is unhelpful, but while a few customers now won’t fit with some lenders, there will continue to be alternatives.”

Mr Boulger added that while this move slightly restricts consumer choice, other lenders may choose to go the other way.

peter.walker@ft.com