It has been revealed that lenders are tightening their criteria for mortgages. The Royal Bank of Scotland is the latest lender to impose an income cap on loans of more than £500,000 in response to pressure over rising house prices.
The bank will restrict lending to a maximum of four times earnings’ for applicants buying properties that are worth more than £500,000- following hot on the heels of a similar move put in place by Lloyds Bank a fortnight ago. The timing of the moves is no coincidence as it comes at a time when the Bank of England is putting pressure on lenders ahead of an anticipated clampdown. The Bank is believed to be considering introducing regulations which would force lenders to make it harder to take out mortgages. Some industry insiders are speculating that the bank could put in place stricter loan-to-value and loan-t0-income ratios.
A spokesperson for the Mortgage Advice Bureau stated that he believes lenders are looking to set guidelines themselves rather than waiting to be pushed into doing it by regulators who want to burst the London high property value bubble. He said that realistically the move will only affect a small number of transactions and will not apply to cash buyers.
Jeremy Duncan from the Legal & General Mortgage Club said that the decision by RBS to follow Lloyds in capping mortgage lending raises awareness of the potential risks that currently surround the housing market. He said that as house prices in the capital rise, it is important not to let them spiral out of control, and capping the loan-to-income ratio is the only way to prevent them from doing so.
The latest figures from Nationwide show that house prices have soared to a new record high with the average UK home now worth £186, 512, up almost £20,000 from last year. Figures obtained by Halifax show that house prices leapt up 3.9 per cent in May, the biggest monthly rise for more than a decade. Despite a recent dip in mortgage lending rates, such figures will surely only add fuel to the fire about the concern of soaring house prices. However, it is believed that other lenders will soon follow suit, with Lloyds and RBS being considered the ringleaders in capping loan to income lending rates.
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