Uncertainty just when we needed it...
Posted on 5 August 2014
With the World Cup behind us, we stand on the brink of a new football season, and this month’s Much Ado sees some interesting times, as lenders seemingly tear up the Mortgage Market Review (MMR) requirements to use affordability calculators, in favour of old style salary multiplier caps. Santander and Nationwide have become the latest of the big high street lenders to introduce a ‘loan-to-income’ cap on their loans, since the Lloyds Bank Group started the trend back in June. RBS has gone even further than it’s initial cap of 4 x salary for loans above £500,000, and introduced a cap of 4.99 x income on all Buy To Let applications too.
The Financial Policy Committee has also been given greater powers by the Chancellor George Osborne to directly intervene in the mortgage market if it sees fit, and they’ve already capped the amount of high loan-to-income mortgages (over 4.5 x income) a lender can do, to 15% of their total lending. Many borrowers may well be concerned as if they are able to borrow 5 x income now, what would happen if the loan-to-income cap is then lower when they come to remortgage? Will their choice of lender be restricted by further salary caps or other negative criteria changes? It’s certainly something to think about when considering your next mortgage.
The latest figures from the British Bankers Association also made for interesting reading, particularly for those borrowers coming to the end of their current deal. Remortgaging in June was down 12% on the previous year, however the second charge lending market is soaring, and is up 33% on the first half of 2013. This would indicate that the remortgage sector, including further advances, has been hit hardest by the new rules and the attending uncertainty, so borrowers have been seeking funds elsewhere.
The regulator has so far been largely silent on the whole salary cap matter, which is odd, as the introduction of true affordability was one of the central themes of the MMR. If the affordability calculators that lenders are using are correct then surely it is irrelevant what the actual salary multiple is? It’s no wonder Martin Wheatley, Chief Executive of the FCA said that he was disappointed by “some lenders not approaching the rules in the spirit they were intended.” The FCA have said that they intend to issue general guidance on loan to income ratios and stress test levels, but in the interim expect lenders to adhere to FPC recommendations.
With the debate raging on as to when the first bank rate hike will come, amid lurid headlines of unsustainable price rises in the London market, the uncertainty that is being creating is hardly welcome. In fact, were the Great British public a football crowd, there would possibly be a few choruses of “You don’t know what you’re doing” being levelled at both lenders and regulator alike.
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