RBS clamps down on lending with income cap

Sarah Davidson

June 4, 2014

The move, which applies to all RBS and NatWest mortgages from later this month, is designed to tackle inflationary pressures in London.

Loans of more than £500,000 will also be termed for a maximum of 30 years.

An RBS and NatWest spokesperson said: “We are focused on looking after the interests of our customers and ensuring that they only take on mortgage lending that they can afford.

“We are committed to helping first-time buyers and supporting the Help to Buy schemes as a step on to the housing ladder for those with small deposits and the ability to afford their mortgage repayments.”

The income cap will apply in addition to standard affordability criteria and risk controls.

The RBS group, which owns both RBS and NatWest, said 2.6% of its mortgage lending in London and around 4.5% outside will be affected.

NatWest currently holds 9% of the London mortgage market.

Jeremy Duncombe, director at Legal and General Mortgage Club, said: “RBS’ decision to follow Lloyds in capping mortgage lending highlights lenders’ awareness of the potential risks facing the housing market at the moment.

“As house prices in the capital increase rapidly, it will be important that it is not allowed to grow out of control and capping the loan to income ratio is one way to do this.

“As it stands, the UK has a two-speed housing market, with London and the South-East at risk of overheating, while other parts of the country are lagging behind.

“Efforts to cool down the market without having a dramatic impact on the rest of the country are prudent.”

RBS stressed that this will only have a minimal impact, as the lender already has a 5x loan to income cap in place.

However Simon Crone, vice president – mortgage insurance Europe for Genworth, added: “Other lenders are bound to consider similar measures, with the European Commission adding to calls for government action on property inflation and Help to Buy 2.

“However, having seen the high loan to value mortgage market restored to life over the last twelve 12 months, it is vital we avoid taking two steps back and cutting off access to loans for people who can afford them.

“The latest Treasury figures show the average Help to Buy 2 customer has a significantly higher income than the typical first-time buyer across the whole market (£42,597 vs. £35,881).

“It is a reassuring sign that the return of 95% LTV mortgages is overcoming the difficulties of saving for a deposit without relaxing lending standards or sidestepping affordability checks.

“Instead of switching off this credit supply, it is time to consider how wider use of mortgage insurance, backed up by the private sector, can support this vital lending to first time buyers and strengthen the system that underpins it.”

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