The move came as Nationwide reported house prices are at a record high, while ex-City watchdog boss Lord Turner said he is worried about the towering pile of mortgage debts facing UK households.
RBS is limiting loans of over £500,000 to a maximum of four-times the borrower’s income, and will not give loans of over 30 years.
The state-backed bank is worried borrowers risk overextending themselves with unaffordable loans at the more volatile top end of the market.
It is the second bank to act – Lloyds has also limited the loans, citing fears over the fierce London market.
RBS expects the cap will affect 2.6 per cent of its loans in London and 0.5 per cent in the rest of the country.
“We are focused on looking after the interests of our customers and ensuring that they only take on mortgage lending that they can afford,” said a spokesperson for the bank.
“We are committed to helping first-time buyers and supporting the Help to Buy schemes as a step on to the housing ladder for those with small deposits and the ability to afford their mortgage repayments.”
Nationwide’s figures show that house prices across the country rose by 11.1 per cent in the year to May, hitting an average of £186,512 and surpassing the previous nominal record level, which was set late in 2007.
Speaking at an event yesterday, Turner – who was head of the Financial Services Authority from 2008-13 – pointed to the overhang of debt as the primary reason “why the recovery from the crisis has been so slow, so weak”.
And Turner warned: “Across the rich developed world, across the advanced economies, private lending credit as a per cent of GDP has been on a relentless increase since the early 1950s.”
“Lending against real estate which is in finite supply... unleashes cycles where the more credit we put into this effort to compete with one another to buy houses in nice locations, the more that house prices go up.”