News Column

FPC Loan to Income Ratio Recommendations Will Discriminate Against First Time Buyers

August 28, 2014

LONDON, Aug. 28 -- The Building Societies Association issued the following news release:

The Financial Policy Committee's (FPC) recommendations to bring in a cap of 15% on the total number of residential mortgages available at or above 4.5 times a borrowers' income may seriously affect first time buyers in London and the South East, the Building Societies Association (BSA) says.

In its response to the FPC's consultation, the BSA raises concerns about the extent to which the higher Loan to Income (LTI) cap will impact younger buyers in particular. The proposal reduces the ability of individuals to get on the property ladder, meaning that people may not be able to buy until they are much older.

In the next 12 months, up to 20 building societies will be affected by these measures. Actual lending by building societies at LTI's of 4.5 times or more has been low this year to date, accounting for under 7% of all lending. However in its submission, the BSA recommends that smaller lenders with gross mortgage originations between GBP100-GBP500 million have a higher LTI limit based on a fixed number of loans rather than 15% of overall lending to ensure the first time buyers are still able to get a mortgage that meets their needs.

The FPC's recommendations are in response to current market conditions. To stop these becoming permanent additions, the BSA also recommends that a 'sunset clause' be introduced. This would also give the FPC the opportunity to weigh up what effect it has had and remove the measures after 18 months if market conditions improve.

Robin Fieth, Chief Executive of the BSA commented:

"This is the first time that macro-prudential tools have been used to control the housing market and the actual effects are an unknown quantity. Of course, affordability is crucial and banks and building societies should only lend what a customer can reasonably repay, however our concern is the effect these measures will have on first time buyers in and around the capital."

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Source: Targeted News Service

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