Large Loans

The Royal Bank of Scotland (RBS) have introduced tighter restrictions on mortgage lending in an effort to make sure customers can afford their loans.

Well that’s the official line anyway, although personally I think there may be hidden agenda…. RBS, which owns NatWest, will restrict customers to borrowing four times their income on loans of £500,000 or more.

At Mortgage Required, most of our business is done in Berkshire and Surrey, two of the most expensive counties to buy property in the UK, yet the average mortgage we arrange is about £190,000. That’s a long way short of the £500,000 threshold.

Only about 2.5% of borrowers have mortgages over this amount and the majority of these loans are for property in London. Last year prices in the capital rose by 17%, so restricting how much you can borrow to 4x your salary may address inflationary pressure in London.

The Lloyds Banking Group who include Halifax, Birmingham Midshires and one or two other smaller brands announced similar measures last month.

I suppose this all makes sense in the world of mortgages, but few attempts to influence house prices in the past have worked. It’s all about supply and demand and in most desirable areas, demand is high and supply very limited.

That’s said, although the high street lenders are making these moves, there are still plenty of private banks happy to get involved in higher lending with “high net worth” clients by offering “individual underwriting” for special cases. These banks often persuade clients to move their banking and / or investments to the new bank in exchange for special underwriting on the mortgage.

I can’t help but think that RBS and Lloyds will simply start to miss out on this lucrative sector of the market and other smaller banks will pick up the slack.

One thing I can’ get my head round is this: Were I earning £500,000 per annum, would I be happy with a mortgage of just 4x my salary at £2,000,000 m? Or would I want to stretch myself further? At what point would the level of my mortgage keep me awake at night? Thankfully not a problem for me right now. Night night!

For more information, speak to a mortgage adviser on 01628 507477 or contact us.