Bank Of England Caps Mortgage Income Multiples

Bank Of England Caps Mortgage Income Multiples.

The Financial Policy Committee (FPC) of the Bank of England has confirmed plans to place restrictions on maximum income multiples for mortgages on banks, building societies and other lenders.

The Bank of England now regulates banks via the Prudential Regulation Authority (PRA) to ensure financial stability and prudence for banks to ensure capital adequacy and not to create the toxic mortgage debt position that created the credit crunch.

The FPC has suggested in its review to the PRA that mortgage income multiples should be capped.

Its suggestion is that no mortgage lender should have 15% of its lending book at higher income multiples than 4.5 times the loan amount. This will apply to all mortgage lenders that lend in excess of £100m.

In addition, mortgage lenders will be required to stress test affordability of mortgages based upon a borrower still be able to afford the loan if interest rates rise by 3%.

Comment

It makes financial sense for lenders to have clear guidelines on what maximums they can lend. In addition, some consumers have to be protected from themselves.

All too often, we are approached by people who are trying to borrow as much as they can to be able to afford a home or indeed climb up the ladder and particularly in London where property prices are so high, people need to borrow high just to buy a basic flat or apartment let alone a house.