In an attempt to try and ‘cool down’ the housing market and its buoyancy, the Bank of England (BOE) and its governor Mark Carney have recently revealed that caps will be imposed on mortgage lending.
Under the new rules, lenders will now not be allowed to lend amounts that are 4.5 times or more above the prospective mortgage borrower’s income if they already have more than 15 per cent of its total mortgages at this level. Here the UK’s leading independent mortgage broker, Mortgage Advice Bureau, unveils how these caps will affect borrowers throughout the UK.
“In reality around 9% of all loans made are at 4.5 times a borrower’s income (or above) so there is still plenty of latitude for those borrowers whose borrowing requirement warrants this and where they satisfy the lender’s affordability model,” said Oliver Adair from Mortgage Advice Bureau.
Due to come into force on 1st October 2014, the new lending caps are just one measure introduced to ensure future affordability amongst borrowers.
“Lenders have already introduced a mortgage stress-test as part of their responsibilities under the recently introduced Mortgage Market Review. The BOE has now gone a stage further whereby a borrower must be able to demonstrate that they could still afford mortgage repayments should rates rise by up to 3%.”
The mortgage income cap is only expected to reduce lending by 2.5%, whilst London and the South East will be hit hardest as currently the ratio of mortgages where more than 4.5 times a borrower’s income is required is 19%.
Oliver added: “Don’t panic, if you were eligible for a mortgage prior to this new measure being introduced, then it is likely that you still will be. Lending volumes will be hardly touched by the plans, and smaller lenders will remain unaffected as Carney has excluded those that lend less than £100m per year – though it must be noted that not all lenders will stretch to the equivalent of a 4.5 times income multiple.”
The same principles apply to Buy-to-Let mortgage lending, which sits outside of these rules, whilst landlords will also remain unaffected.
“It is anticipated that lenders will begin putting the rules into place as soon as possible to prepare. Therefore, it is vital to get advice from a professional mortgage adviser who understands the new rules and which lenders will accept your personal circumstances,” concluded Oliver.