Bank of England Set Limits to curb Irresponsible Lending

Fri, 27 Jun 2014

Bank of England Set Limits to curb Irresponsible Lending
The Bank of England has announced new restrictions that it will apply to the mortgage market come October, in an attempt to prevent irresponsible lending.

Addressing the issue of inflating house prices and experts' fears of the formation of a housing bubble, the Bank of England will restrict mortgage lending only to borrowers who will be able to cope if there was to be an increase in inflation of 3%.

Furthermore, mortgages will be restricted in terms of a Loan-to-Income (LTI) ratio.

There will be a 15 percent limit on the amount of mortgages that can be lent out with a LTI of more than 4.5. Currently, 19 percent of mortgages in London and an estimated 9 percent of mortgages nationwide exceed the 4.5. limit.

Chancellor George Osborne is backing these limits and says he is fully supporting them. He also vowed that no Help to Buy mortgages would be issued above a 4.5 LTI once the limits come into force in October. Fewer than 5 per cent of Help to buy Mortgages are thought to be over the 4.5 limit at the moment.

Overall however, it is thought that these limitations should not inhibit the majority of people seeking mortgages, simply alter their mortgages to stabilise the housing market.
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