Lloyds caps mortgages

LLOYDS Bank yesterday announced a shock clampdown on home lending designed to tackle the London housing boom, saying applications for mortgages worth over £500,000 would now be subject to a new income test.

Borrowers will now only be able to get their hands on over half a million pounds from the UK’s biggest mortgage lender if the loan is worth a maximum of four times their income.

Lloyds said the new policy will affect about eight per cent of its lending in London. The cap comes into effect immediately for customers of Lloyds as well as Halifax, Bank of Scotland and Scottish Widows.

A Lloyds spokesperson said that the move was designed to counter the fact that expensive properties have seen the most volatile prices changes since the market began its rapid recovery, and that people taking out larger mortgages were more likely to be doing so at higher multiples of their earnings.

Fresh figures from the Office for National Statistics (ONS) yesterday confirmed that house prices in London are far ahead of the national averages, rising by 17 per cent in the year to March. The ONS said the average London house is now worth £459,000. Outside of London and the south east of England, prices rose by only 4.7 per cent in the same period.

The announcement from Lloyds came alongside increased political tension around the government’s housing policy, and especially the controversial Help to Buy scheme. Prime Minister David Cameron said yesterday that he willing to axe the policy if the Bank of England warns against it.

Speaking to the BBC yesterday, Cameron said: “We have specifically asked [Bank of England governor] Mark Carney to examine Help to Buy and to advise us if any changes are needed... We will consider any changes that are proposed by Mark Carney.”

Over the weekend, Carney identified runaway house price inflation as the single biggest threat to the UK’s financial stability, raising suspicions that the Bank will announce new controls on the mortgage market at its next stability update in June.

The Bank has expressed confidence in the use of financial stability tools to cool the market, rather than raising interest rates.

But yesterday outgoing deputy governor Charlie Bean conceded in his last policy speech that the Bank “has relatively little experience” with such tools, and that “there will often be scope for those affected to work out ways to circumvent them”.

He added: “There may well be times when monetary policy is the only game in town to guard against incipient financial stability risks.”

There were also hints of a political split over the issue yesterday, with business secretary Vince Cable saying that “reining back on the Help to Buy scheme” could be a useful way to cool concerns about the housing market.

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