Lloyds Banking Group, the UK’s biggest lender, has announced new restrictions on its mortgage lending policy, capping applications at no more than four times a borrower’s salary.
The group – which includes Lloyds’ subsidiaries Halifax, Bank of Scotland and Scottish Widows Bank – banned all loans of more than £500,000 ($844,667) with immediate effect, unless the mortgage offer was less than four time the household’s income.
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The move comes amid fears that the market in the South-East is spiralling out of control – with London prices rising up to 21 times faster than those in other parts of the UK.
Stephen Noakes, director of mortgages at Lloyds, said: "This decision to limit lending is largely driven by issues of supply which are particularly acute in London."
According to the Office for National Statistics (ONS), the average house price in the capital rose by 17% in the past year and is now £459,000.
Vince Cable, the business secretary of State, reiterated his view that hundred of thousands of new homes needed to be built to meet the demand:
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By GlobalData"There is an enormous gap between what’s needed, which is probably 300,000 houses a year, and what we’re currently getting, which is 125,000-130,000."
Lloyds’ move comes just days after the Bank of England governor, Mark Carney, described large mortgages of up to five times income as risky.
Carney warned that the surging housing market in the UK, backed by rising prices, could affect the economic recovery of the country.
He advised the government to halt its controversial ‘Help to Buy’ scheme, which provides taxpayer-backed guarantees for homebuyers and is due to end in 2016.
Carney is only the most recent person to add his voices to a growing chorus of calls for the scheme to be watered down – last month, the Organisation for Economic Co-operation and Development (OECD) also warned that house prices are becoming over-valued.
Following Lloyds’ move, other financial institutions in the UK are expected to tighten their mortgage lending policy – although no announcement has been made yet.
The bank of England reported earlier that this month gross UK mortgage lending was £15.3bn in March, up 32% in value compared to March last year.
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