The Bank of England has moved to cap loan-to-income multiples on new mortgage lending in a bid to cool the housing market.
At the June meeting of the Financial Policy Committee (FPC), the body recommended to the Prudential Regulation Authority and the Financial Conduct Authority (FCA) that no more than 15 per cent of a lender’s new mortgage lending be at more than 4.5 times income.
The PRA board is today setting out proposals on how the recommendation will be implemented and the consultation will be open for comments until 31 August. The final rules will take effect on 1 October.
While the rules will come into effect on 1 October, any mortgage that completes after this date will be subject to the proposed rules, regardless of whether the application of a decision in principle was completed before then.
In the FPC’s latest financial stability report published today, the committee said most lenders currently lend within the recommended limits but added that it was necessary to take action to ensure people do not take on more debt than they can afford.
The FPC’s report says the proportion of borrowers with a loan-to-income (LTI) multiple greater than four rose to 22 per cent in the first quarter, exceeding the former peak in 2007. Further, the proportion of mortgages to borrowers with an LTI of greater than 4.5 rose to 11 per cent, up from around 8 per cent at the peak in 2007.
Royal Bank of Scotland and Lloyds Banking Group pre-empted the Bank’s intervention and earlier this month capped lending over £500,000 at no more that four times income.
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