Mortgage blog: Second major bank clamps down on mortgage lending

Posted 16 June 2014

A second major High Street lender has introduced new restrictions on mortgage lending as fears of a property price bubble intensify. The Royal Bank of Scotland (RBS) is to implement tougher lending rules, joining the Lloyds Banking Group in bringing in tighter controls on home loans.

Other lenders are expected to follow suit, making it even tougher to get a mortgage, particularly in London.

RBS to restrict income multiples on larger loans

The Royal Bank of Scotland has announced that it is going to implement tighter restrictions on mortgage lending in an effort to make sure customers can afford their loans. RBS, which owns NatWest and is 81% owned by the government, plans to restrict customers to borrowing four times their income on loans of £500,000 or more.

This follows a move by the Lloyds Banking Group who implemented the same policy last month. RBS says the new rules will help to address house price inflation in London, where property values rose at an annual rate of 17%, according to the latest figures from the Land Registry.

The bank says says the new measures will only affect 2.6% of its volume of mortgage lending in the London market. Outside the capital, that figure falls to just 0.5% of volume, or less than 500 mortgages.

A spokesperson for RBS and NatWest said: "We are focused on looking after the interests of our customers and ensuring that they only take on mortgage lending that they can afford. We are committed to helping first-time buyers and supporting the Help to Buy schemes as a step on to the housing ladder for those with small deposits and the ability to afford their mortgage repayments."

The new policy will apply to all RBS and NatWest mortgages from later this month.

Other banks ‘monitoring' their mortgage policies

After the moves by Lloyds and RBS, several other banks are expected to tighten mortgage requirements in the coming weeks ahead of an expected clampdown from the Bank of England. There is speculation that the Bank's Financial Policy Committee may introduce new affordability rules at its Financial Stability Report at the end of the month.

Santander and Barclays both responded to Lloyds' announcement by saying that they continually monitor mortgage policies.

House prices in London have risen by 17% in the last year, according to the Office for National Statistics, and are 30% above their pre-crisis peak. Nationwide recently reported that the average price of a UK house passed its 2007 record in May.

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