Lloyds lending move sparks debate

Other major lenders said they are committed to lending responsibly and have strong checks in place to make sure mortgages are affordable.

Andrew Montlake, director at broker Coreco, said: “The big question is whether other lenders will follow suit as often where Lloyds leads others soon follow.

“What it does do is create another talking point, which when added to the rhetoric coming from the Bank of England in recent days, changes people’s perceptions that prices will be allowed to keep rising – that in itself may be enough.”

Ray Boulger, senior technical manager at mortgage adviser John Charcol, said it will be “interesting” to see whether or not other mortgage lenders follow Lloyds’s example.

He suggested that some lenders may see the move as an opportunity for them to take more business in areas of higher lending, while others may feel they need to follow Lloyds’s lead.

Mr Boulger said: “If nobody else follows, the business that was going to go to (Lloyds Banking Group) will simply go elsewhere. But if you get about three of the major lenders doing it, who have around 50% of the market, that then puts a lot of pressure on others.”

The change announced by Lloyds on Tuesday means that 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 policy, which is particularly targeted at tackling the pressure of housing inflation in the London market, takes place alongside Lloyds’s usual affordability checks and it applies to mortgage lending through the group’s brands of Halifax, Lloyds Bank, Bank of Scotland and Scottish Widows Bank.

The announcement came after Bank of England governor Mark Carney recently signalled he is ready to take action to cool the housing market amid growing concerns over the threat that a new property price bubble could pose.

Mr Carney said the Bank could adopt a range of measures – including imposing a new “affordability test” for borrowers and advising the Government to rein in the Help to Buy mortgage support scheme.

David Hollingworth, spokesman for broker London and Country mortgages, said the move by Lloyds could be seen as a reaction to concerns raised by the Bank.

He said it “makes a clear statement” that it will not be as easy to borrow in the higher income multiples to buy a higher value property.

Toughened industry-wide mortgage lending rules have already come 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.

A spokeswoman for Santander said: “As a responsible lender we constantly review affordability and adjust our criteria based on a number of factors – one of which is the macro housing market.

“All our lending decisions are based on affordability and we always take into account the customer’s overall financial position, including incomings, outgoings and any dependants, to assess the customer’s ability to meet their mortgage payments now and in the future.”

Barclays said it will lend up to 5.5 times income in certain scenarios but this depends on several factors, including someone’s level of deposit, income and debts.

A statement said: “Barclays is committed to being a responsible lender and we continually monitor our lending policy and customer proposition in the context of the mortgage market and prevailing economic environment.

“Affordability is the most important factor in assessing and approving a mortgage, with income multiples being used in addition to this to set an absolute limit to the maximum borrowing available, linked to LTV (loan-to-value) and income. A stress rate is applied to reflect the forward view of interest rates over the current five-year horizon.”

HSBC said it has no plans to change its mortgage lending criteria. It said that it assesses mortgage applications on a variety of factors, including affordability and income multiples, adding that it has been ensuring customers can afford payments at a higher interest rate for several years.

A spokeswoman for Royal Bank of Scotland (RBS) Group declined to comment on any specific future plans but said it continually reviews its lending policies.

RBS said it already places a strong focus on affordability and it has been weighing up what customers can afford against potential future interest rate rises for some time.

On Monday, Skipton Building Society increased the rates on some of its fixed-rate mortgage range to temper what it said was “unprecedented” demand.

The increases included a 0.71 percentage point hike on a two-year deal on offer for people with 20% deposits. The rate on the deal, which carries a £995 fee, has been raised from 2.38% to 3.09%.

Paul Darwin, Skipton’s head of intermediary sales, said when the changes were announced: “Due to very high demand for our products, our strict internal goals on service levels are at risk.

“We do not believe that it is appropriate to compromise service to existing pipeline customers by continuing to take on the current unprecedented high volumes of new business that we are experiencing.”