Mark Harris, chief executive of mortgage broker SPF Private Clients, said that it was 'suprising' that the Bank felt this move was necessary as lenders are broadly sticking to suggesting restrictions already.
However, he added:
"There does need to be flexibility for high-net-worth borrowers. Many outgoings are fixed outgoings: if you are earning £40,000 you might not be able to afford 4.5 times income but if you are earning £400,000, it might be perfectly affordable to take on a mortgage that is six times your income. Someone living in a four-bed house in Barnsley will have similar outgoings to someone in a four-bed house in Fulham but it will be worth much less and their earnings are likely to be much lower. The mortgage market review has an exception for HNW borrowers but lenders seem reluctant to use it."
Similarly, Jeremy Duncombe, Director, Legal & General Mortgage Club commented:
“Lenders already carry out robust affordability testing to ensure that borrowers will be able to afford their mortgage repayments should rates rise. These tests were also strengthened by the recent MMR regulations. Further policy changes before the market has had a chance to adapt and settle down run the risk of stifling recovery. At the moment there is a two speed housing market in the UK and policy makers need to be careful that the more fragile recovery outside London and the South East is not affected.
“It is important to understand the fact that many consumers will adjust their spending priorities themselves if rates rise. With that in mind, lenders need to be flexible and pragmatic when assessing what is ‘affordable’ for borrowers under different economic conditions. Household budgets when mortgage repayments are at 3%, for example, are likely to be rather different were those rates to rise to 5%. Here, common sense from both the lender and the borrower needs to prevail.”
Others noted that the move would mostly affect London.
Simon Crone, Vice President – Mortgage Insurance Europe for Genworth, comments:
“Limiting the proportion of high loan to income mortgages is a well-intended move, but it will mostly affect London and adds to a series of interventions that encourage growth with one hand and rein it in with the other. To guard against the need for another re-think, we need to work towards a fully planned and sustainable framework that maintains a lasting balance in the mortgage market."
Adrian Anderson, director of mortgage broker Anderson Harris, says:
"These new rules will have a much bigger impact on borrowers in London and the south-east than elsewhere. The key in London will be assessing what income the lender applies the 4.5 times multiple to. More people in London are on basic salaries with a bonus element and this needs to be taken into account. Such a limitation suits a model where someone earns a basic salary and no bonus but doesn't suit a more typical model for the professional working in London and the south east where bonuses form a large proportion of their remuneration."
Philip Hogg, Chief Executive of home building industry body Homes for Scotland, said:
“We are pleased that the Bank of England has listened to calls for a targeted response addressing areas where house prices are at significantly higher multiples to income and support the principle of sustainable, responsible lending.
“As all commentators have recognised, there are no signs of a housing bubble in Scotland where market recovery is still very fragile.
“This is in stark contrast to conditions in London where prices have increased by nearly 20% and it is here that the lending cap will have most impact as has been highlighted by the Council of Mortgage Lenders which reports that 19% of new loans are 4.5 times income in London compared to 9% nationally.
“Ultimately, however, and as both the Governor and Chancellor have recognised, there is only one way to tackle pressure on house prices and that is to significantly increase the supply of new homes.”
