After coming close to violating a regulatory cap on lending to higher-risk customers, Barclays has been forced to withdraw mortgages for some clients.
The UK bank surprised customers last week when it cut the limit they could borrow without warning from 5.5 times income to 4.49 times. Borrowers who had already negotiated mortgages were affected by the move, placing some property transactions at risk of default.
The decision was made after Barclays came close to a cap set by the banking regulator, the Prudential Regulation Authority, stipulating that no more than 15 per cent of mortgages for each lender should have a multiple income of 4.5 times or higher, according to people briefed on the decision.
In recent weeks, UK banks have been inundated with applications for mortgages as the temporary reduction in stamp duty has led to increasing demand for housing, with UK house prices reaching record highs last month.
Barclays said: “We have recently announced some improvements to our limits on loan to income. We took this decision as a responsible lender to ensure that we continue to adhere to regulatory obligations.’
In the coming weeks, brokers fear other lenders may be forced to take similar action. Last week NatWest made improvements to its mortgages, lowering from 4.9 to 4.25 times the highest loan-to-income rate is provided to self-employed clients. Brokers added that the Barclays decision came as a shock to borrowers as it included existing applications — those where an arrangement has been reached in principle and an applicant may have paid a survey or legal fees and is awaiting a verified offer to swap contracts from the lender. By keeping up homebuying chains, it can also have an effect outside Barclays’ borrowers.
Barclays’ mortgages were common among higher earners based on up to 5.5 times income, and brokers said demand had risen in the post-lockdown period as mortgage constraints tightened in the broader market.
Source: Financial Times