In reaction to calls from the Bank of England for lenders to assist in curbing ever increasing property values, the Lloyds Banking Group have chosen to introduce a 4 x income cap on any lending above £500,000. The move has seemingly been introduced by one of the largest lenders in the market as an attempt to prevent escalating property prices from destabilising the market.
In a press release from the bank, they confirmed that: ‘This is a targeted policy change primarily designed to address specific inflationary pressures in the London housing market'. The comments were attributed to Stephen Noakes, the group director for Lloyds. He also stated that: ‘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. This prudent update to our lending policies is intended to manage risks to our business and for our customers'.
The Lloyds Group is currently still partly owned by the UK tax payer, and the company line yesterday was that pressure had not come down from the Bank of England and the Chancellor, George Osborne, to update the lenders policy. However, market experts have commented on the matter and have speculated that the decision was made either to pre-empt a sanction from the BOE, but more likely due to requests from the Government to back calls for change to lending principals.
For any contractor looking to take a mortgage with Halifax should know the change will only affect new applications. Applications already submitted will not be scrutinised under the policy change. Notably, the group’s decision will not alter the income multiple utilised for applications under the £500,000 threshold, where an allowance of up to 5 x income will still be applicable, subject to affordability measures being met.
Commenting on the matter, Senior Mortgage Consultant Steven Clements, from Contractor Mortgages Made Easy, said: ‘This move is not necessarily a surprise, considering that the group, and in particular Halifax, have for a long time been considered one of the most flexible lenders in the market. The introduction of the Financial Conduct Authority’s Mortgage Market Review was expected to introduce many changes, and it would not be unexpected to see other lenders outside of the Lloyds Group following suit'.
Clements noted that this may now prevent some contractors from achieving their goals, but overall it should not wholly disrupt the market. He said: ‘For higher earners looking to stretch themselves, this may slightly reduce the level of borrowing available. However, the average property value seen for a home in London sits at £459,000, and the take-up on the 5 per cent deposit version of the Help to Buy scheme has been very low in the capital. As this is the case, the average required deposit likely sits between 10-15 per cent for a purchase, leaving a mortgage balance anywhere from £390,000-£413,000. For many contractors in London this would mean lending is still viable. The issue for many contractors is where a bank ignores a large part of their contract income, using the annualised contract rate should remove most issues as the earnings are defined at a higher level'.
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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