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Limiting high LTI lending is backwards and unnecessary

Robyn Hall

July 3, 2014

From October 1 lenders will need to ensure that no more than 15% of their residential mortgages are above an LTI ratio of 4.5.

But Fleming-Duffy said: “I think the four and a half times income is borne out of unsophisticated dinosaur judgement. We’ve already got affordability tests.

“A broad brush approach in this day and age seems quite surprising.

“It’s a very simplistic mechanism. We don’t trust banks; we don’t trust affordability models, so here you go: 4.5.”

Fleming-Duffy had hoped the UK would continue moving more in line with EU banking procedures.

However mortgage broker Jonathan Burridge largely supports the LTI cap.

He said: “I think action needed to be taken.

“That 4.5 multiple will have an enormous impact on people trying to buy a house. What the Bank of England are trying to do is limit what they consider to be the highest risk.

“Every time we have a crash it builds up to a peak higher than the previous income so I think they are being prudent.”

Burridge joined Council of Mortgage Lenders chairman Stephen Noakes in supporting the Financial Policy Committee’s move.

Noakes said: “I feel that the steps are proportionate to the risks that we currently face.

“The FPC has resisted any political pressure to take tougher action and has put forward proposals that I think most of us in the industry would understand and accept.

“At this stage, however, we still haven’t seen the results of the stress tests.

“Perhaps we will take a different view in a few weeks’ time. For now, though, we can take comfort that the FPC’s view is broadly in line with our own – and move on.”

Burridge believes the move may curb house prices far more effectively than raising interest rates in the long-term.

He added: “I’ve always maintained that increasing interest rates effects the wider economy substantially and it won’t necessarily have a sufficient impact on house prices.”

Rather than introducing the LTI cap Fleming-Duffy reckons MMR could be widened to look into unsecured lending after the property purchase goes through.

He went on to say: “I would like to see probing a bit further in terms of unsecured lending.

“For all the assessment the banks go through, day one after they buy a property they can get a 10 grand credit card, accumulate loads of debt and it makes everything unaffordable again.”


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