Financial institutions expect a lending slowdown due to income multiple tightening

Mortgage lenders foresee approvals will reduce in the 2nd half of the year as a result of a tightening of criteria around large loans, supported by high income multiples.

Responding to the Bank of England’s Credit Conditions Survey lenders said they expected mortgage approvals to decline in the coming three months, caused by changes brought about by the Mortgage Market Review.

The committee said borrowers may have to reduce the size of the loan they had applied for or delay their purchase until their income increased to a level which could meet lenders’ affordability tests.

The Bank expects approval levels to stabilise over time when short-term issues such as staffing training and IT issues, necessary to adjust to the MMR, had been implemented.

Lloyds and Royal Bank of Scotland, both partially owned by the government, were the first lenders to cap income multiples.

The banks set a limit of four times income on mortgages of over £500,000.

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