Five Questions On: Lloyds' mortgage cap

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The Independent Online

Is the giant bank cutting back on lending again? Not really. It's just introduced a cap of four times a borrower's salary for those applying for loans of more than £500,000.

That sounds quite sensible. Is it? It is, though the move is mainly aimed at the overheated London property market where the average house price is now £459,000, according to the Office for National Statistics. Stephen Noakes, group director of mortgages at Lloyds, said: "In London, house prices are almost now 30 per cent above the 2007 peak. This is largely driven by issues of supply which are particularly acute in London, and this is having an impact on income multiples which are failing to keep pace with asset growth."

How many people might be affected? Lloyds, which is the country's largest lender through its various brands such as Halifax and Bank of Scotland, said it expected the policy change to affect around 8 per cent of its lending in London. However it won't apply to people renewing their mortgages, which means they won't be trapped in poor deals.

Will other lenders follow? Experts reckon so but warned lenders not to have a knee-jerk reaction to the potential bubble in the capital. "While concerns that London and parts of the South-east are overheating remain very real, the same cannot be said in the rest of the country," pointed out Jeremy Duncombe of the Legal & General Mortgage Club. "Any direct measures taken to turn the heat down are prudent. However, it's important that concerned policy-makers are not too London-centric in their outlook."

Could there be even tighter rules? That's unlikely. Most lenders are now back in the market-place and keen to lend. The recent changes in the mortgage selling rules mean there are now plenty of affordability checks on borrowers.

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