March 5th, 2015
The Bank of England has decided not to shift from their current position of maintaining the base rate, as some of their policies around mortgage lending have come under fire.
Trade organisations urged the policy-makers at the Bank of England this week to abandon rules like the ‘Loan to Income’ caps, which were brought in last year to slow down the accelerating housing market.
The ‘LTI caps’, as they became known, caused banks to limit mortgages over £500,000 to 4.5 times the borrowers’ income, regardless of how comfortable the monthly affordability picture looks.
The criticism of the central bank has come amid a flurry of activity from existing and new lenders to accommodate lending to contractors, which neatly steps away from these issues by using the gross contract rate to define a borrower’s income.
Initially the caps were introduced by the nationalised banks like Lloyds Banking Group and RBS, but since then other lenders have copied the move so they don’t end up carrying a large share of the large loans market.
Charles Haresnape, chairman of the Intermediary Mortgage Lenders’ Association, had the following to say regarding the caps.
“We are reaching the point now where the committee should be reviewing it, but I would imagine they will wait until after the election to see how the housing market reacts to the outcome.
“I agree that lenders may start to feel they have to impose their own caps – lenders wouldn’t want to be taking all the business at a higher affordability level or income multiple.”
The UK regulator of financial services, the Financial Conduct Authority (FCA), also adopted a defensive approach yesterday, as they drew criticism for their policies around responsible lending. Lynda Blackwell, Mortgage Sector Manager for the FCA, tried to defend the Mortgage Market Review rules that came into effect last April.
“In the interests of ensuring a sustainable market in future, the MMR rules are not going to allow lenders to go back to the lax standards we saw pre-crisis.
“That means, however, that many of today’s borrowers’ choices are going to remain constrained as there is a mismatch between their risk characteristics and what’s actually available in terms of products.”
The momentum of lending to contractors has not been slowed by the restrictive lending rules, however, as Saffron Building Society reduced the minimum deposit requirement on their contractor range this week to 10%.
Saffron join Metro Bank, Leeds Building Society, Newbury Building Society, Nationwide and TSB as recent entrants in the contractor lending market; albeit some of these taking tentative first steps with cautious criteria as they size up the market.
Article By:Taj Kang, Business Development Director at Contractor Mortgages Made Easy
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