Lloyds Bank has become the first lender to clamp down on huge mortgages, capping the amount it will lend at £500,000 unless the offer is less than four times the household income.
In a bid to prevent a repeat of the irresponsible lending that preceded the financial crisis back in 2008, where some borrowers were offered home loans of up to six times their salary, Britain's biggest lender has now banned all loans of more than £500,000 unless the borrower can prove a single or combined salary of £125,000.
With the average house price in London expected to hit £560,000 by the end of next year, many of those looking to buy in the capital will be priced out of the market. According to the Daily Mail, official figures revealed recently that house prices in London are rising up to 21 times faster than in the north of the country, and the recently introduced mortgage 'stress tests' are adding to borrowers' woes.
Stephen Noakes, director of mortgages at Lloyds, insisted the move was a "targeted response" to an issue in the upper tiers of the London housing market, and the bank said only around 8 per cent of loans in London, and around 2.5 per cent across the UK, would be affected.
Industry experts believe other lenders will soon follow. Ray Boulger, of mortgage adviser John Charcol, told the Mail: "When you see a mortgage lender doing something like this, you do tend to find others following suit. It would be surprising if nobody else did the same thing."
The new rules will also be in place at Lloyds' subsidiaries, Halifax, Bank of Scotland and Scottish Widows Bank, with immediate effect.
What do you think? Are Lloyds right to cap mortgage lending, and should others follow suit? Leave your comments below...