Lenders should leave LTIs alone

Gemma Harle

March 4, 2015

Gemma Harle is managing director of TenetLime

We all broadly support the MMR’s core objective of ensuring affordability by moving away from income multiples but now we seem to be marching right back to where we started.

Lenders seem to be falling over themselves to introduce loan-to-income (LTI), caps and it is very difficult for brokers – never mind the end consumer – to predict who will do it next.

We are led to understand the restriction comes from the Bank of England’s financial policy committee, yet do not really understand the detail of the calculation or why lenders cannot use their overall criteria to ensure they remain on target.

Are the already comprehensive treasury and provisioning tools they use not sufficient to prevent such an apparent panic?

One thing is certain though, this burgeoning blanket approach is completely the wrong measure.

Lenders may well proudly proclaim that they are not turning people away but how many people are being deterred from applying in the first place?

It seems like scaremongering to me and does not in any way tackle the perceived problem it is intended to solve.

Brokers are being left completely in limbo due to the sweeping, overnight rush to cap LTIs with no warning or plausible explanation. How on earth can they advise clients under such circumstances?

All it is likely to result in is increased market volatility, a shortage of stock and more people without a foot on the housing ladder, as buy-to-let landlords seize the opportunity to hoover up the available properties.

MMR sought to move us away from income multiples. Now we’re rushing headlong right back to them.

The FPC is coming under increasing pressure to intervene as fears of a domino effect heighten. This follows their October stipulation that loans of 4.5 x income should not exceed 15% of all new loans issued.

Whilst accepting that lenders cannot be expected to take all their income from higher affordability levels, this is a thoroughly negative and unnecessary move right now.

An urgent regulatory review would be a welcome measure as this current LTI-cap fever will not result in positive outcomes for consumers.

There is no dispute over the fact that lenders need to keep their books balanced, but surely this can be better achieved through realistic affordability parameters and clearly-defined lending criteria?

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