Nationwide caps ALL mortgages at 4.75x income

Graham_Devon

Nationwide is capping all new mortgages at 4.75 times the borrower's income and imposing a tougher affordability test.

The move, which takes immediate effect, comes as concerns grow about mortgage lending fuelling a house price bubble.

RBS and Lloyds have set a cap of four times income on loans above £500,000.

And the Bank of England's Financial Policy Committee said that mortgage lenders should not have more than 15% of their mortgage lending at income multiples above 4.5 times.

But Nationwide's new restriction applies to all residential lending.
In addition, the building society will test whether applicants can afford a mortgage interest rate of 6.99%.

It would not reveal the previous figure, but confirmed that the new "stress" test was tighter than before, in line with Bank of England recommendations.

Nationwide blamed the new criteria on recent Financial Policy Committee recommendations, published in June. The FPC published a report which said regulators should ensure lenders are not able to hold more than 15 per cent of its mortgage book at an income multiple above 4.5x.

Suggests they were lending higher amounts than this before the cap? Still, 4.75x is still pretty high.

http://www.bbc.co.uk/news/business-28429082

PasturesNew

Graham_Devon wrote: »

...4.75x is still pretty high...

Frighteningly so! Having said that, I see it from my perspective, where 3x income is just about doable when rates are "normal", how they used to be. I'm guessing that the more you earn, the easier it is to afford 4.75x your salary as your basic outgoings don't increase; and as it's mostly wealthier people/couples buying houses, they probably have a higher than median salary, so maybe 4.75x salary for wealthier people is just as achievable as 3x for a poorer/single person.

Not sure I wrote that as clearly as could have been achieved.... but I know what I meant.

AndyGuil

Unless you are on a base rate tracker then mortgage rates are roughly normal.

the_flying_pig

4.75 times joint.

words fail me.

HAMISH_MCTAVISH

AndyGuil wrote: »

Unless you are on a base rate tracker then mortgage rates are roughly normal.

Correct.

Average mortgage rates didn't fall nearly as much as base rates did, as many/most banks found ways to protect their margins.

Hence why the OBR has estimated a 2.5% rise in base rates will only translate into a 0.8% rise in average mortgage rates.

HAMISH_MCTAVISH

the_flying_pig wrote: »

4.75 times joint.
.

Well yes, there is that.....:)

Which is much, much higher than the average loan today.

the_flying_pig

HAMISH_MCTAVISH wrote: »

Well yes, there is that.....:)...

yeah, i mean, the cap is at a level that was totally unheard of during the 20th century. so even if [cough] certain believe that mortgage lending is currently, in some respects, restrained, it's undeniably that in some other no less important respects lending is the loosest its ever been.

HAMISH_MCTAVISH wrote: »

...Which is much, much higher than the average loan today.

i'm not sure of the point you're making.

imagine that of the mortgage loans in the economy 20% [i.e. one fifth] of them fall exactly at the following income multiples:

1.25
2.25
3.25
4.25
5.25

average - 3.25

a new cap of 4.75 is brought in.

this presumably means that future mortgage loans will be as follows, 20% each of.

1.25
2.25
3.25
4.25
4.75

average - 3.15

the cap being below the average obviously doesn't mean that no loans will be affected.

pbouk

HAMISH_MCTAVISH wrote: »

Correct.

Average mortgage rates didn't fall nearly as much as base rates did, as many/most banks found ways to protect their margins.

Hence why the OBR has estimated a 2.5% rise in base rates will only translate into a 0.8% rise in average mortgage rates.

That famous word again....ESTIMATE.

Thrugelmir

Graham_Devon wrote: »

Suggests they were lending higher amounts than this before the cap? Still, 4.75x is still pretty high.

On a £100k salary, £475k mortgage over 25 years at 7% will still leave disposable income of over £2k per month. What's the problem?

Bantex_2

Thrugelmir wrote: »

On a £100k salary, £475k mortgage over 25 years at 7% will still leave disposable income of over £2k per month. What's the problem?

Mad thing is that £475k will not even get you a 3 bed terrace in most of Greater London.

ruggedtoast

It is almost inconceivable that interests rates will rise.

I simply will not believe it. Even if it happens.

Which it wont.