Bank of England to make borrowing a large mortgage easier

It may now be easier to borrow more than four-and-a-half times of your annual salary following the Bank of Englands decision to loosen the cap placed on loan-to-income mortgage lending, which has been put in place with  immediate effect.

Ray Boulger, senior technical director at mortgage broker John Charcol, said: “In the short-term there will be scope to increase the proportion of offers in excess of 4.5 times income more than that.”

The recommendation advised by the Financial Policy Committee in June 2014, was to “ensure that mortgage lenders do not extend more than 15 per cent of their total number of new residential mortgages at loan-to-income ratios at or greater than 4.5”.

However, the PRA has said the will change the rule to a four-quarter rolling limit as apposed to the fixed quarterly limit that is currently in place. This will make it easier for lenders to manage the limit without concern that they may be in breach of the current fixed rate, making larger mortgages more accessible to borrowers.

Boulger said: “Because many mortgage offers are valid for up to six months but lenders don’t know how quickly borrowers will complete, each lender has up to now had to assume that a higher than statistically likely proportion of offers in excess of 4.5 times income will complete quickly. As a result lenders have restricted the proportion of offers in excess of 4.5 times income to about 13 per cent, compared to the PRA’s actual limit of 15 per cent. This has been to ensure that in case an abnormal proportion of higher income cases complete quicker than normal, the lender’s proportion of such cases completing in any one quarter did not exceed 15 per cent. Now, by basing the 15 per cent limit on completions over a one-year period rather than three months, it gives lenders much more flexibility to get closer to the 15 per cent limit if they wish to”.

You can read the full article published in Daily Mail 

Image Credit Fabian Irsara on Unsplash

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