In London, where house prices have risen by over a quarter in the past year, Bank of England statistics suggest income ratios above 4.5% have risen from 12% in 2007 to 17% now.
Estate agent Haart figures out today show average London property prices reached £501,056, up 26.1% annually and 4.3% on month. This is annual growth of £103,761 fuelled by a massive in-balance of supply and demand.
The UK’s biggest mortgage lender has moved to stop borrowers over-reaching themselves in London ahead of any upward movement in interest rates from 0.5%. The Group expects this policy change to impact around 8% of its London lending.
This policy change will take effect immediately across the UK and applies to mortgage lending through Halifax, Lloyds Bank, Bank of Scotland and Scottish Widows Bank.
Stephen Noakes, group director of mortgages said: “Whilst the housing market outside of London is starting to improve, the recovery is fragile and prices largely remain below their peak. It is important we don’t disrupt this recovery.
“But in London, house prices are almost now 30% above the 2007 peak. This is largely driven by issues of supply which are particularly acute in London and this is having an impact on income multiples which are failing to keep pace with asset growth.”
“We’re not seeing such issues across the rest of the UK and therefore this is a targeted response to an issue largely in the upper tiers of the London housing market. This prudent update to our lending policies is intended to manage risks to our business and for our customers.”
Noakes added that the group continues to support the Help to Buy mortgage guarantee scheme as it has raised confidence in the housing market particularly outside of London. The scheme only accounts for 2% of purchases in London overall.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “The move by Lloyds is slightly puzzling. It won’t have a significant impact on Lloyds’ lending book as the bank itself expects the change to impact around 8% of its lending in London. There are other choices for borrowers requiring mortgages at this level and we don’t expect other lenders to follow suit as it doesn’t make a great deal of sense.
He added: “If you are earning in the region of £125,000, which would qualify you for a £500,000 loan, you are the sort of person who can cope with an increase in interest rates as you will have greater disposable income than a first-time buyer.
“Lloyds would not necessarily be the first choice for borrowers requiring £500,000-plus loans anyway and there is plenty of capacity elsewhere in the market to take up the slack.”
