Mortgage lenders take tough stand amid default fears

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The UK'S largest mortgage providers have adopted more stringent standards to lending due to rising fears that borrowers will default on their contracts in the wake of impact of the 11 September attacks on the economy.

Halifax, Abbey National and Cheltenham & Gloucester (C&G) have either made changes to their lending policies or are in the process of doing so in order to avoid a repeat of the plunge into negative equity, which befell thousands of home buyers in the early 1990s.

All of the lenders stressed that they have not needed to rewrite their policy to lending as their normal lending policies were prudent and have become a lot more sophisticated in their assessment of risk in the last 10 years.

But they are understood to have become more risk adverse when dealing with large loans and clients who work in fields where redundancies have been widespread, such as investment banking.

Halifax, the UK's largest lender, is thought to have reigned in lending and is watching the health of the housing market very carefully. Abbey National, Britain's second-largest lender, said: "In light of the current economic conditions our income multiple policy is up for review, but there has been no decision at the moment."

A spokeswoman for C&G, which is part of Lloyds TSB, said: "We are not making a knee-jerk reaction, but we have turned people down in one or two areas. For example, we are asking customers applying for 100 per cent mortgages to think very carefully."

Alliance & Leicester recently reduced the possibility of bad debts by cutting the maximum loan to £100,000 from more than double that when customers had a deposit worth only 5 per cent of the value of the property.

Industry insiders say that while the major lenders have adopted more cautious lending policies, many of the unquoted providers, including smaller mutual organisations, are still offering large loans and high multiples of incomes. This is to try to regain market share in new mortgage business, which has slipped dramatically in the last year.

Ray Boulger, a senior adviser at the mortgage brokers Charcoal, said there was not much evidence of widespread clamp downs on lending but said providers were less inclined to write large loans on the terms they had been offering.