The Bank of England’s decision to limit lenders’ high-risk business has been called rash and hasty by some. But we must distinguish between individual lending assessments and macro-prudential controls.
Perhaps the decision on LTI caps was premature, given the full effects of the MMR have still to emerge. But The Intermediary Mortgage Lenders Association has always believed the Bank is right to take steps to safeguard long-term stability.
The reversion to basic income multiples caps may affect some borrowers’ access to finance in 2015 and beyond. A number of large lenders have already introduced their own LTI caps and more will follow.
But most lenders are well below the 15 per cent threshold while remortgages, buy-to-let, lifetime and second-charge loans are excluded from the rule. Lenders with annual lending of less than £100m are also exempt. The Bank’s modelling seems to suggest it assumes some borrowers will negotiate down the price or increase their cash deposit to make up the difference.
This is likely to be only the first of ongoing interventions – so we need to get used to it.