Bank of England change may help you to get a bigger mortgage

The Bank of England has made a change to an obscure rule which could make it easier for borrowers to get a bigger mortgage.

The Bank has amended a regulation which limited the number of 'high loan-to-income' mortgages that banks and building societies were able to offer. The change means that lenders are now free to offer more loans at high income multiples.

Banks set to agree more mortgages at high income multiples

In June 2014, the Financial Policy Committee issued a recommendation that mortgage lenders do not offer more than 15% of new mortgages to borrowers wanting more than 4.5 times their income.

This 'cap' on the number of high loan-to-income deals has meant that many lenders have been reluctant to help borrowers looking for a mortgage at a high multiple of their income. Now, the Prudential Regulation Authority has announced that it will change the rule to change the current fixed quarterly limit into a four-quarter rolling limit.

This Is Money reports that 'the change is technical but it could have a fairly significant effect on how easy it is to get a larger mortgage in relation to your income. This is because it will allow lenders to manage the limit more easily, rather than err on the side of caution and avoid making big loans in case they breach the fixed quarterly level.'

With the rule change, experts believe that around 10% more borrowers may benefit from a home loan of more than 4.5 times their income. Industry commentator Ray Boulger said: "In the short-term there will be scope to increase the proportion of offers in excess of 4.5 times income more than that."

Mortgage expert Mark Harris, says: "The change reduces the likelihood of lenders ‘pulling down the shutters’ in panic when they get close to the reporting limits, which should make for a smoother, more manageable process."

Bank of England also planning to help smaller lenders compete in the mortgage market

The change to the 'loan-to-income' rule follows a separate announcement from the Bank of England which revealed that it is considering measures to improve competition in the mortgage market.

The Bank says that it is consulting on proposals to allow smaller building societies and 'challenger banks' to hold a lower amount of capital against the loans they make.

This follows several years of lobbying by challenger banks who claimed that the current capital requirements put them at a disadvantage against the big high street banks, which can price loans more cheaply.