Lloyds sets up loan-to-income cap



Britain's biggest mortgage lender is imposing a new loan-to-income cap on people looking to borrow more than half a million pounds in a bid to tackle the pressure of housing inflation in the London market.

Lloyds Banking Group said that from today, people applying to take out a mortgage worth more than £500,000 will see the amount they are allowed to borrow limited to four times their income.

The new policy will apply across the UK but Lloyds said it is primarily designed to address specific inflationary pressures in the London market.

The policy will take place in addition to Lloyds' usual affordability checks and it will apply to mortgage lending through the group's brands of Halifax, Lloyds Bank, Bank of Scotland and Scottish Widows Bank.

The group expects the change to impact around 8% of its lending in London and around 2.5% of lending across the country.

It is understood there have been concerns that some people who are wanting to snap up high-value properties are also looking to borrow high amounts in relation to their income.

Stephen Noakes, group director of mortgages said: "Whilst the housing market outside of London is starting to improve, the recovery is fragile and prices largely remain below their peak. It is important we don't disrupt this recovery.

"But in London, house prices are almost now 30% above the 2007 peak. This is largely driven by issues of supply which are particularly acute in London and this is having an impact on income multiples
which are failing to keep pace with asset growth.

"We're not seeing such issues across the rest of the UK and therefore this is a targeted response to an issue largely in the upper tiers of the London housing market. This prudent update to our lending policies is intended to manage risks to our business and for our customers."

The announcement came as Office for National Statistics (ONS) figures showed that in London, property values have leapt more than twice as fast as the national average over the last year, with a 17.0% annual lift in the capital pushing average prices there to £459,000.

Prime Minister David Cameron has also said he would consider making changes to the Government's flagship Help to Buy mortgage scheme, if the Bank of England suggests that they are needed.

The London market continues to be a strong pull for wealthy cash buyers from overseas who are looking for good returns for their money.

Mr Noakes continued: "The group continues to support the Help to Buy mortgage guarantee scheme as it has raised confidence in the housing market particularly outside of London.

"Help to Buy is not one of the factors driving London house prices. Just 2% of purchases in London in 2014 have been through the scheme, with the significant majority of applications coming from the rest of the UK."

Toughened industry-wide mortgage lending rules came into force last month, which mean that lenders now have to probe mortgage applicants more deeply about their spending habits to check they can afford their mortgage repayments, both now and when interest rates eventually rise.

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