You are here: cherry > Press releases for June 2014 > High Street banks’ crackdown on bigger home loans could cut off oxygen at top of the property market and create an adverse ripple effect at the lower end, warns mortgage broking arm of wealth manager HFM Columbus

09 June 2014

 

   NatWest, RBS and Lloyds all capping mortgage loans at 4 x income

   But this will stifle activity at top end of market says HFM C

   ‘Madness’ in current underwriting criteria as banks scramble to meet new FCA rules

 

MORTGAGE lenders are in danger of shooting themselves in the foot when it comes to arranging high end loans, according to wealth manager HFM Columbus.

 

Gary Festa, head of mortgage lending for the London and Surrey based wealth manager, said that the UK’s major banks are lacking ‘common sense’ while attempting to comply with tighter new lending guidelines recently introduced by the FCA (*).

 

“There is a collective madness currently governing mortgage underwriting decisions at the top end of the market. In our view there is a real danger of a collapse in property transactions in the multi-million pound bracket which is powering the wider market,” said Festa.

 

“The constraints currently being imposed by underwriters across the biggest High Street banks make it very hard to arrange mortgages for properties at the top end of the market,” he added.

 

“Lloyds, RBS and now NatWest have all recently moved to cap lending at four times income, but as we know, properties at the top end of the market – especially in London and hot spots in the south-east – can run into the many millions of pounds.

 

“As an example, for someone wanting to borrow say £450,000, a lender may still consider 5 X income, meaning the borrower needs a salary of £90,000.

 

“But if the borrower wants say £550,000, the lender in our experience will only go to 4 times income – requiring an annual salary of £137,500.

 

“You have to ask, do you really need an extra £47,500 to service that extra £100,000? Why do underwriters think like that?

 

“The basic costs of living, such as bread and milk, tube and buses, gas and electricity, petrol, a pint of lager and Sky TV are the same whatever your income, so why penalise the higher earner who retains more of their net income than someone earning say £20,000 after paying for basics,” argues Festa.

 

“Surely if anyone was to be restricted to 4 times income it should be the lower income earners, who may not cope with a sharp rate rise,” he said.

 

“Lenders say they are imposing the caps in an attempt to cool down the very high prices at this end of the market, but ultimately what is going to happen is that the market will stall, creating a difficult knock on effect for lower value properties further down the ladder.

 

“A senior member of the FCA, speaking at a recent conference, appealed to lenders to use ‘common sense’ when considering loan applications, and that in our view is what is needed in this market,” said Festa.

 

“As an example, HFM Columbus was recently approached to arrange a £4.5 million residential mortgage on a Home Counties property valued at £7.5 million.

 

“Mainstream lenders wouldn't even discuss it – despite the fact that the applicants could comfortably meet the monthly repayments. Fortunately an old established private bank took a grown up view and looked beyond the 4 x income rules and issued an offer, allowing the mortgage to be completed within a fortnight.”

 

 

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