Bank reduces mortgage amounts fearing buyers are exceeding their budget

March 21, 2016 by Brendan O'Neill

Lenders

NatWest has lowered the amount it will lend to borrowers as the bank fears that buyers are taking on too much debt and are overstretching themselves.

The move will affect buyers with a deposit between 15% and 25%, who will find that the amount they can borrow will be reduced from 4.75 times their annual salary to 4.45 times their salary. The new ratios will apply to joint and single earners. As house prices continue to increase, more borrowers will have to stretch their finances to get onto the housing ladder, and it is believed that the changes by NatWest are in response.

Rules introduced in 2014 and backed by the Financial Policy Committee, state that a lender can loan out no more than 15% of its loan book to buyers requesting 4.5 times or more of their annual income. This rule was introduced to prevent borrowers overstretching themselves, especially as interest rates begin to increase. However, buyers are looking to borrow even more money as house prices continue to soar. David Hollingworth of London and Country Mortgages, says that the changes to loan to income ratios are necessary to ensure that lenders don’t lend more than they should. Hollingworth adds that the restriction may make it difficult to borrow the required amount, even if the buyer passes the affordability tests.

A mortgage adviser who is CeMAP qualified will be able to offer guidance before applying for a mortgage, so that buyers do not overstretch themselves.