Borrowers looking for a mortgage in the UK will struggle to find a lender willing to advance a loan of more than 4.5 times their income because of new lending rules.
The latest lender to follow this trend is TSB who now follow in the footsteps of Barclays and Santander.
TSB now says its customers will not be able to borrow more than 4.5 times their annual income – until recently they allowed applicants to borrow up to five times their salary.
The bank says its decision has been made because of ‘changes in the market’.
Santander and Barclays offer lower mortgages
Santander led the way in adjusting its loan criteria and the bank will not now allow first-time buyers to have a mortgage that is five times their annual income.
The bank says that all loan applications must now be below 4.5 times income.
This isn’t the first time that Santander has restricted first-time buyer lending limits after reducing its criteria from 5.5 times income last year.
Barclays followed suit in January and dropped its criteria from 5.5 times income to less than 4.5 times.
More mortgage lenders will reduce lending criteria
At first the bank imposed the change on borrowers who had a deposit of less than 20% but this was soon changed to cover all borrowers.
Now mortgage industry experts say that other lenders will join this trend and reduce the amount they are willing to lend.
One reason for this imposition is that it’s the mortgage lenders delayed reaction to rules introduced by the Bank of England.
From last October, lenders cannot lend more than 15% of their homeowner lending to borrowers at more than 4.5 times their income.
Affordability test for mortgages more important
The move has come in for criticism from several mortgage industry experts who point to new lending rules brought in last year when using income multiples had less emphasis.
Instead, the new regulations placed more scrutiny on affordability with lenders having to focus on outgoings rather than just income.
The other issue for anyone looking for a mortgage using more than 4.5 times their annual income will find the number of willing lenders slowly reducing – the smaller financial firms will follow the larger lenders from the market.
Mortgage analyst Ray Boulger, who works at broker John Charcol, told the Daily Telegraph that they would follow suit because they will want to avoid being deluged with higher risk mortgage applications.
Other analysts are now predicting that by the end of 2015 no lender will be offering mortgages at 4.5 times income or above to any applicant.