Wednesday, 21 May 2014

How Lloyds will limit big mortgages

Lloyds, including Halifax, Bank of Scotland and Scottish Widows Bank, has said that it will restrict mortgage lending to people wanting to borrow more than £500,000.

The move is targeted directly at the spiralling London housing market and the risk that buyers might get themselves into trouble with over-risky purchases.

But why is Lloyds saying that it will limit this sort of lending to 4 times income?

After all, we were told that simple income multiples were a thing of the past, across the whole mortgage business.

From last month, they were giving way to much more detailed affordability assessments, based on detailed questions about childcare spending, haircuts, food bills and so on.

The answer is that Lloyds is bringing in a twin track approach for these soar-away London purchases.

Anyone asking for half a million pounds or more will still be subjected to the new barrage of questions about lifestyle and family budgets.

The spending power revealed by this process is then compared to the overall cost of a mortgage, factoring in future interest rate increases, according to a secret Lloyds formula.

The fact is that even after going through this mill, some people with large salaries and few commitments will find that they can borrow more than 4 times their annual income.

Some will qualify for 5 times, or even more, just like the bad old days before the credit crunch.

What Lloyds is saying is that even if its affordability checking machine spits out approvals for people asking for loans of more than 4 times income, they won't be given the money.

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