Nigel Glossop, Managing Director of Alexander James Mortgage Services, comments on how the recent cap on mortgage lending will affect borrowers.
The Bank of England and its governor, Mark Carney, have revealed their plans to try and cool down the housing market using, what have been labelled, ‘macroprudential tools’.
What measures are the Bank taking?
The main adaptation is that lenders will not be allowed to lend 4.5 times income or above to prospective mortgage borrowers where that lender already has more than 15 per cent of its total mortgages at that level.
In reality currently 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 lenders affordability model.
Is there going to be a restriction on lending?
Lenders have already introduced a mortgage ‘stress-test’ as part of their responsibilities under the recently introduced Mortgage Market Review. The BOE have 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%.
In view of this, the income multiple cap is only expected to reduce lending overall by just 2.5%, with the main impact felt in London and the South-East where currently the ratio of mortgages where more than 4.5 times a borrower’s income is required is 19%.
Will I still be able to get a mortgage?
Simply put, 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, indeed, 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 goes if you are thinking of getting a buy-to-let mortgage. This type of loan is outside the rules and landlords will remain unaffected.
What to do next?
Whilst the measures do not come into force until 1 October, 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.
Nigel Glossop is from Alexander James Mortgage Services – for further information call: 0845 437 9602, email: enquiries@ajms.org.uk or visit: www.ajms.org.uk.
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Correct at time of publication. The views and opinions expressed herein are those of the individual contributor and do not necessarily reflect those of the Chancellors Group of Estate Agents Ltd or its subsidiaries. References to legislation, best practice and other matters with legal implications such as fees, rules and processes are included for information and editorial purposes only and are not authoritative, nor should they be interpreted as advice. When in doubt you should only take advice from an industry professional or solicitor where appropriate. E&OE.
