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Boulger slams FSA mortgage cap plan

Industry guru Ray Boulger says if the Financial Services Authority limits mortgage lending to only 3 x a borrowers income it will be a retrograde step.

Lord Turner, chairman of the Financial Services Authority is rumoured to be going to announce a cap on mortgage lending tomorrow.

But Ray Boulger, senior technical manager at John Charcol, says: “The government has said that it wants to help first-time buyers. Limiting them all to borrowing a maximum of 3 x income will surely do the exact opposite.  

“Why should someone who chooses to allocate a higher proportion of their income to their home than someone else for whom a maximum of 3 x income may be appropriate because they choose to spend more on, e.g. cigarettes, alcohol, eating out, clubbing and holidays, be penalised?”

He says if mortgages are limited to 3 x income many borrowers who have borrowed more than that, but have a perfect credit rating, would be denied the opportunity to remortgage or move house, and would therefore be at the mercy of whatever uncompetitive rate their current lender chose to offer them, in the knowledge that they were a totally captive customer.

He says: “While 3 – 3.5 x income was the norm 20 years ago when mortgage rates were frequently well into double figures and it was necessary to budget for rates up to about 15%, in a low interest rate environment a higher level of borrowing is clearly more affordable. 

“Rates will of course rise significantly from current levels; however it is surely unlikely that Bank Rate will have to shoot back up into double figures in the foreseeable future.

“The FSA has previously encouraged lenders to use “affordability” instead of income multiples as the basis for deciding how much to lend and all the major lenders have adopted this approach over the last few years. Going back to old fashioned income multiples would be a seriously retrograde step and particularly so with a multiple as low as three.”


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