Bank of England rule change could mean more large mortgages

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The Prudential Regulation Authority, a division of the Bank of England, has changed the rules affecting how many large mortgages of 4.5 times or more than a borrower’s income can be issued, reported in February 2017.

Prior to the rule change, lenders could not lend more than 15% of their borrowers large mortgages. This was a fixed quarterly limit, but is now a four-quarter rolling limit. With a fixed limit, most borrowers erred on the side of caution, with many keeping to a 13% figure. The reason for this is that the time between offering a mortgage and the mortgage being completed is usually several weeks.

A mortgage offer granted near the end of one quarter would be expected to reach completion in the next quarter. However, if the mortgage went through quicker than expected, it would count towards the current quarter’s limit. If a number of mortgages completed quickly, a danger of the 15% limit being exceeded arises. This is why lenders restricted the number of large mortgage offers.

A rolling figure is easy to manage. More large mortgage offers could be given because lenders will no longer need to fear exceeding the fixed monthly quota.

Although mortgages of 4.5 times more than the borrower’s yearly income may become easier to obtain, mortgage holders need to be certain that they can afford the repayments. Mortgage protection insurance is recommended to ensure payments continue if the borrower cannot work through sickness or injury.

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