Tuesday, 17 October 2017

How to navigate the new mortgage rules being put in place

A FORTNIGHT ago, Business Secretary Vince Cable asked banks to reduce the size of mortgages they offer amid concerns of another housing boom.

Ministers want the Bank of England to do more to push banks to accept a new cap on loans to buy a home. Mr Cable believes a limit of three-and-a-half times an applicant’s income would be a stable level to prevent the whole economy destabilising as a result of a boom in house prices in the south of England.

Policymakers at the Bank of England have moved to calm the property market by capping mortgage lending and making lenders do more to ensure house-buyers can meet their repayments.

Financial experts say it is thought to be a form of insurance against a damaging housing bubble in the future instead of a major effort to immediately eradicate the problem. According to the Financial Policy Committee (FPC) at the Bank lenders should not provide more than 15 per cent of mortgages with income to lending ratios of 1 to 4.5 to people buying residential property.

It also wants institutions that provide home loans to “stress test” those borrowing money from them to determine whether they could still afford repayments if interest rates rise by three per cent during the first five years of their mortgage. The Council of Mortgage Lenders (CML) says across the UK just nine per cent of home loans are for amounts 4.5 times the incomes of borrowers, but in London this is the case with 19 per cent of mortgages.

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