Bank of England rule change makes it easier to borrow a larger mortgage

March 5, 2017 by Brendan O'Neill

Borrowers

Following tweaks by the Bank of England to one of its rules, it may be easier for borrowers to secure a mortgage which is more than 4.5 times their yearly income.

Lenders have limits in place for the number of high loan to income mortgages which they are permitted to approve for borrowers, and this was measured on a quarterly basis. The Bank of England has now amended the rule, so that the measurements are calculated over a yearly period. This means that lenders are likely to be less cautious when approving the loans.

According to Ray Boulger, the senior technical director at John Charcol, there are likely to be around 10% more high loan to income mortgages approved than previously. In June 2014, it was recommended by the Financial Policy Committee, that the Financial Conduct Authority and the Prudential Regulation Authority should ensure that no more than 15% of a lender’s residential mortgages should be a high loan to income ratio.

The move is likely to prevent lenders refusing mortgages as it approaches the quarterly limit, as the lender will have a full year to balance the approvals.

Another measure which is under consultation, is to be less rigid about the amount of capital which must be held legally by smaller building societies against the loans they approve. These moves are designed to increase competition in the mortgage market.

Before taking on a mortgage with a high loan to income ratio, it is advisable to seek advice from a CeMAP qualified mortgage adviser.