Bank of England rule change to impact high loan to income mortgages

December 8, 2016 by Brendan O'Neill

Lenders

The Bank of England has recently proposed changes to the rules regarding high loan to income mortgages that may see lenders being able to relax the number of mortgages approved.

Currently, lenders are restricted to just 15% of their total lending being for mortgages where the borrower has taken out 4.5 times their income or above. The Bank of England has proposed changes which may provide greater flexibility for lenders.

The Prudential Regulation Authority from the Bank of England has planned changes for the system, after complaints were received about legitimate borrowers being affected by the current rules. Lenders generally limit the number of loans with a high loan to income ratio to between 10 and 13%, so that they don’t exceed the 15% limit.

However, although lenders can control the timing of a mortgage being approved, they can’t control the completion, which means that some mortgages may fall into the subsequent quarter. Many of the lenders will make sure they don’t get anywhere near 15%, to compensate for any mortgages which fall into that month.

However, one mortgage broker states that those who have higher levels of income may be able to afford a higher loan to income ratio, as they have more disposable income to spare, than someone who earns a much lower income.

The rules vary from lender to lender, so speaking to a mortgage adviser who has studied on a CeMAP course, may help a borrower to find a mortgage which meets their requirements.