BoE to cap mortgages
From October 1 lenders will need to ensure that no more than 15% of their total number of new residential mortgages are above a LTI ratio of 4.5.
The Bank has taken the decision as it looks to cool the housing market as fears of a house price bubble continue to mount.
But the Bank of England was keen to stress that lenders should continue apply whatever criteria they feel are appropriate and commensurate with their risk appetite.
In a statement the Bank of England said: “The Prudential Regulation Authority would not expect firms to vary their lending practices as a result of this policy unless they find that they would otherwise be in breach of the limit.”
CML figures reveal the average income multiple for first-time buyers was 3.42 and 3.22 for all home-owner house purchase borrowers 3.22.
Paul Smee, CML director general, welcomed the new measures and said that the London property market would probably see the largest impact from the change.
He said: “The new affordability stress test that requires lenders to check their borrowers’ affordability against an assumed Bank rate 3% higher than at origination will clearly ensure resilience to shocks.
“Limiting the level of a lender’s lending to no more than 15% of new mortgages at 4.5 times income or above (and none at all for Help to Buy guaranteed loans) is likely to impact the London market more than elsewhere. Nationally, 9% of new loans are at 4.5 times income or more, but the figure is 19% in London.
“It’s important not to confuse these measures, which are designed to ensure financial and economic stability, with wider housing policy, for which the Bank is not responsible.
Additional housing supply to help correct the imbalance between supply and demand is the main way of relieving affordability pressure and household indebtedness attributable to mortgage borrowing over the long term.”