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Barclays introduces blanket LTI cap

Barclays has limited all mortgage applications to a maximum of 4.5 times income.

Previously, the maximum LTI available to a borrower was determined by their salary, although this has now been scrapped and a 4.5 times income cap placed on all loans, down from a maximum of 5.5 times income before.

Any cases submitted before 21 January will be processed under the previous criteria, though applications handed in after this date will have to be resubmitted.

In a statement to brokers, Barclays says: “Any cases submitted which are greater than 4.5 times income will be declined at underwriting.”

Perception Finance managing director David Sheppard says: “It’s one thing to have a cap on income multiples for higher LTVs but capping across all loan to values is a bad move that will lead to concerns other lenders will follow suit.

“A cap of 4.5 times income is often not enough for people looking to buy in London. I am surprised by this.”

Coreco director Andrew Montlake says: ”While I don’t have a problem with doing things meant in the customer’s best interests, I think the sudden nature of the announcement took people by surprise. And some people will not get the amount they expected.

”I hope this is just a one-off and I suspect many lenders will use this to claw back some business.”

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  • Grey Haired Underwriter 28th January 2015 at 10:27 am

    Anyone who thought the change to an affordability based lending model was going to be effective are ‘P**ing in the wind’. The affordability model has far too many faults for it to ever be really effective and I believe that the Regulators know this. So what am I referring to here:

    1. The stress test percentage is not industry wide and we all have to come to some form of decision that doesn’t upset the Regulator. That’s why stress rates are running at anything between 6 -8%. The fact of the matter, however, is that the chance of rates returning to those sorts of levels within the next five years is somewhat unlikely (although never say never).
    2. The lender has to look at likely financial changes that should take place over the next five years but isn’t permitted to allow for the possibility of salary increases. Are wages more likely to go up within the next 5 years than a doubling of interest rates? And if interest rates go up doesn’t it mean that a rise in wages is likely to maintain a level of affordability?
    3. If you look at the basis of an affordability calculator it requires the lender to work on a net income. This is interesting because a tax code might be 500L this year to allow for underpaid tax in the previous year but may rise to a standard 1000L in April. That makes a difference of £5,000 on free pay or £1,000 in cash pa (20% tax) or £2,000 (40% tax). So I could lend you one amount today that would increase markedly in April! MMR also doesn’t allow for the fact that even if you don’t get a salary increase the Chancellor may well increase your tax free allowance and increase your net income. Wonder if this will introduce a new seasonality into lending?
    4. The interesting cases are self-employed and there can be a lot of difference here. I shan’t go into too much detail or it would take a side of A4 alone.
    5. MMR affordability also expects us to allow for household costs so a single person household is cheaper to run than a two person household. The single person can borrow more but the lender is supposed to anticipate the next 5 years. What are the chances that the singleton will be living with a partner and maybe have a child within the next 5 years? Again there are an enormous number of permutations.
    6. Because of the netting of income a couple on £50,000 with only one earner will be able to borrow less than another couple with separate salaries earning, say £35,000 and £15,000. There may be a question of child care costs if both are working but, of course the dual income couple’s parents provide full time child care and cost nothing (even if they live 50 miles away)
    7. A lender has a choice as to how they will assess living costs – use ONS data or ask for an individual breakdown. ONS is quite honestly not the greatest tool in the box but I also know from painful experience that there can be phenomenal dispute about how much a person spends on clothing pa or food or household material. I have had people claim that they spend a fiver a week to feed themselves (It may be possible but I hardly think I want to lend up to the hilt taking a punt on this). How much time should be spent disputing household costs and what a waste of time.
    8. For me MMR affordability has a major and its most fundamental flaw. It ignores the fact that not all people are the same and it takes away my right to make a judgement about this. There are people who live sensibly, have no credit, save money and don’t use an overdraft. They live within their means and their conduct suggests they are a good punt for a bit of an income stretch. There are others that are happy to go over their overdraft limit to pay for their next on-line bet and who love their credit cards – people who have no leeway if something goes wrong but who fit an affordability calculator. Who would you want to lend to?

    I could go on and on but I hope I have made my point. LTIs (multipliers in old parlance) may be a crude measure but the simple fact is that they have worked provided that prudence is applied. I am bound to say that 5.5 x incomes is verging on the stupid and reminds me of the idiocy of the 1990 crash. Certainly anyone borrowing at this level will really suffer if rates go up as there is no leeway written in but a sensible multiplier has a track record. It’s also much easier both for brokers and the customer to understand and would take immense time out of the process. I for one cannot wait to see the Regulator swallow its pride and allow lenders to go back to good old fashioned prudential lending. And before anyone quibbles the loss of lenders at the early part of the recession had little to do with affordability but everything to do with the wholesale markets.

    Have I got a ‘bee in my bonnet’ about MMR affordability – the obvious answer is yes simply because it is a stupid piece of work by someone who had never lent a bean and was a response to a problem that didn’t exist.

  • The Cynical Broker 27th January 2015 at 10:22 am

    At the end of the day if Barclay’s business levels drop to unacceptable levels we’ll see another change. Their Buy to Let business fell off a cliff when they changed their rental calculation, and it may be the same for residential. It does certainly mean that they will have to be even more price concious now, as this is primarily the main reason to use them, particularly as their latest move has shown their dwindling loyalty to to the intermediary market, which has been evident in their losing several key intermediary supporters over the last year.

  • Stuart Duncan 23rd January 2015 at 5:40 pm

    I do not believe that this is a choice made by Barclays. I smell the whiff of yet more external interference from the FCA, PRA or some other group of social engineers.

    The whole concept of MMR was affordability-based lending and consultations with the industry were based on this. If this is a result of pressure from an outside agency then they need to stop pretending that they care about the consumer. We now have another lender who will not be able to rescue mortgage prisoners, so their numbers will swell further.

  • Good Mortgage Man 23rd January 2015 at 4:29 pm

    Thanks David. So Barclays have effectively reduced their lending across the board by 20%. And without even giving us any prior notice!? Brilliant. Thanks very much indeed.

  • David Sheppard 23rd January 2015 at 3:11 pm

    Yes it is Good Mortgage Man. They will now not do any mortgage above 4.5 times regardless of LTV.

  • Good Mortgage Man 23rd January 2015 at 2:33 pm

    I understood that 5.5 x would still be available up to 80%??

    Is this a further reduction in that position since their last announcement then??

  • joe average 23rd January 2015 at 12:19 pm

    Johnathan I agree with your comments regarding suppressing house price inflation and although there will always be cash buyers I have noticed also that the BTL sector is continuously toughening up at present, with LTI caps & only a few lenders stress testing at the actual payrate, removal of regulated BTL, many lenders pulling out of BTLS for FTB’s or at the least testing the affordability for FTBS as if it was a residential. Many lenders also becoming stricter with Let to Buy criteria i.e. there must be an ongoing purchase whereas before in many cases you could capital raise then move in with family or rented.

    The Woolwich affordability calculator is annoying enough as it is as the calculator in many cases has classed the mortgage as affordable as the ‘disposable income was sufficient’ but the case wouldn’t fit because it exceeded the income multiplier, there needs to be a new calculator that streamlines these two factors together.

    It will be very interesting to see how others follow suit on this move from Barclays, but I am sure that generally speaking across the board there aren’t many lenders out there who’s underlying model beneath their online affordability calculator would exceed 4.5x income in any case.

  • mic2002 23rd January 2015 at 11:30 am

    The more worrying thing here is that this is a MAX of 4.5 – which tells me the real multiple is going to be much lower.So what we now have is an affordability model constrained by a max of 4.5 income. Thats going to be mighty popular. Not.

  • Jonathan Burridge 23rd January 2015 at 11:05 am

    When will we start asking whether the move to affordability based loan assessment is actually working? If borrowing passes stress tests and affordability models then the loan is affordable. It has been noble of Barclays to hold back on this nonsensical stance longer than it’s counterparts who have the State as a stakeholder. The only reason I can see that this step is being taken is to suppress housing prices, which I can understand, limiting access to credit prevents prices rising, however, there are still large numbers of cash buyers and obviously the Buy to Let sector, where such limitations are currently only seen with a small number of lenders. Either lenders affordability models are wrong, or, this is an unnecessary complication and limitation for many borrowers, many of whom have already been affected by changes in policy and lending rules, such as the self-employed, those over 50 and those with historic adverse credit.

  • Colin Payne 23rd January 2015 at 10:56 am

    Given the upheaval the market has gone through over the last few years and the significant changes not a great deal surprises me and this cap on LTI’s is not dissimilar to Barclay’s change to their stress test on BTL last year in so far as they seem to have gone from one end of the spectrum to the other overnight.

    What disappoints me from a lender that is generally so positive towards the intermediary market is the way in which they have gone about it. To inform brokers AFTER the change had taken effect is unreasonable, I am sure there will be numbers of applicants that had applied yesterday, will essentially be declined today and will have no where else to turn.

    I am sure there will be brokers that had cases on their desk on the 21st ready to proceed and due to their own workload were unable to submit immediately and applied yesterday (22nd). These cases will be declined if the LTI is above 4.5 x.

    Would it really have hurt Barclay’s too much to have provided a fair notice period and implemented the change from Saturday 24th Jan or better still, Monday 26th Jan. I accept that may have resulted in an increase in applications but I doubt it would have been too significant a peak given nationally the average LTI required to obtain a mortgage is below 4 x.

  • joe average 23rd January 2015 at 10:32 am

    A good move and certainly not one that should gather a sympathy vote for it not being a sufficient enough multiplier to be able to buy in London!