June 5th, 2014
The Bank of England have again held the base rate at 0.5%, as policy-makers start to curb mortgage lending in order to avoid a London housing market disaster.
A couple of weeks ago the Lloyds Banking Group, majority owned by the UK taxpayer, announced that large mortgage loans in excess of £500,000 would be subject to a cap of four times income. The reason they gave for this was to control “specific inflationary pressures in the London housing market.”
This week another bank that is 80% owned by the taxpayer, the Royal Bank of Scotland, followed suit and implemented the same four times income cap on loans over half a million. An RBS spokesperson had the following to say regarding the new policy.
"We are focused on looking after the interests of our customers and ensuring that they only take on mortgage lending that they can afford.
"We are committed to helping first-time buyers and supporting the Help to Buy schemes as a step on to the housing ladder for those with small deposits and the ability to afford their mortgage repayments."
It is no coincidence that the shift in stance has come from two Government-owned banks, days after the Governor of the Bank of England Mark Carney warned that there were “deep, deep problems” in the housing market.
This has been followed by Nationwide announcing that house price growth in May has now surpassed levels last seen in 2007, immediately prior to the crash. The report went on to say that there were tentative signs that the rate of growth may be slowing, but that there was still approximately 5–6% growth predicted for the rest of this year.
Andy McBride, Business Development Director at Contractor Mortgages Made Easy, analysed the impact of the rapidly changing lending climate on contractors looking for a mortgage.
“There is no doubt that the lending controls announced by Lloyds and RBS are aimed at the London housing market. Price increases at the rate we have seen in London since the start of last year are unsustainable. The fact that many contractors work in London, and look to buy property close to where they work, means that these measures to control inflation will be a good thing for many.”
McBride went on to talk about the recent mortgage regulations, and what the Bank of England may decide to implement next, to ensure the economic recovery isn't derailed by reckless lending practices last seen before the credit crisis.
“Contractors have less to fear than permanent employees when it comes to current and future mortgage regulation. The key thing is affordability, both now and in the future after possible rate increases, when a bank is assessing a contractor's ability to pay. When the gross contract income is correctly used to define earnings by a bank, affordability is rarely a concern. Most contractors are pretty sensible when it comes to what they want to borrow, and it is rare that the income multiple of four times income will hamper plans.
“The key thing here is preparation. Understand where you want to buy, what prices are doing there, and what a potential lender is willing to do for you.”
Article By:Taj Kang, Business Development Director at Contractor Mortgages Made Easy
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