Barclays slashes maximum mortgage lending ratio as NatWest reviews deals
Mortgage lenders use a calculation known as a Loan-to-Income (LTI) ratio. This refers to how much the borrower is borrowing relative to their annual income. If the LTI was four, this means the mortgage debt is four times the borrower’s annual income.
Barclays has cut its LTI for all residential cases that have not yet gone to offer from a maximum 5.5 times income to a maximum of 4.49 times income.
For borrowers with a loan to value (LTV) above 90% and joint income of £50,000 or less, the new LTI will be tighter at four times income.
This limit will also apply to applications where there is a debt to income ratio of 20% or more.
The lender said the LTI cut would also affect cases where a “material change” has occurred that was reported after 28 August.
Barclays listed seven examples which it considered to be a material change in circumstances:
- An increase to the mortgage term
- An increased loan amount
- A change that results in increased outgoings/expenditure, for example adding a commitment or financial dependant
- A reduction to the stated income
- An increase to LTV
- A change of repayment type
- A change of borrower.
A Barclays spokesperson said: “We regularly review our lending policies and today have made some changes to loan-to-income multiples.”
In a note issued to brokers and advisers, the lender stated: “These changes also apply to any application that has been created and not submitted and to those that have been submitted but are yet to receive an offer.
“Please be advised if you do have a case that has not yet gone to offer, we will assess under the new policy and you will be notified of the outcome in the usual way.”
The lender has also used the opportunity to simplify the number of LTI categories across its proposition.
NatWest is also expected to announce a change to its LTI position but was unable to offer further details.
A NatWest spokesperson, said: “We continually review our proposition to ensure it is in line with current market conditions.”
The LTI changes come after a number of lenders have pulled their low deposit mortgage deals, while others have clamped down on furloughed applicants.
Data released this week also revealed that despite the recent stamp duty cut, low deposit mortgage deals have all but disappeared from 779 in March to just 62 in September.
‘Dramatic affect for clients’
Andrew Montlake, managing director at mortgage broker Coreco, said there are a number of reasons why these changes are being made.
“It could be that they are looking at further ways to dampen down their lending due to ongoing capacity issues or, what more likely is that lenders now operate on a limit of how much lending they can do above 4.5 times income at a certain point in time and this may be the reason for the sudden retreat.
“I don’t think there is anything sinister in this move at all and, though hard when we see our clients affected so dramatically, we need to try to understand how difficult it has been for lenders as well during this extraordinary period.
“I would hope that we get some clarity from lenders on their reasons for such moves, so we can communicate this effectively to our clients rather than jumping to conclusions. It is always a lack of honest communication that makes things like this so much harder.”